In my last post I ran through the real costs of hiring an “employee” known as a producer. Some of you, I am sure, are arguing with me that I have overstated the expense.
Maybe.
But I don’t think so. I’ve been running an agency for a long time. We believe in being profitable. We are building an asset. We pay attention to agency operations and agency value. We talk to other agency owners. We benchmark, every quarter, our results against the Growth and Performance Study and the Best Practices results (see my earlier blog post on this topic).
I am very confident I know what I’m talking about with respect to the numbers.
So, let’s talk about “Producer” compensation. Clearly, we have about 30% to work with. I will give a little on this subject in that OAA members really can count on getting bonus income every year and our commissions are higher than the typical agency. So, if you want, you could use 35%. Those of you who aren’t OAA agencies should do so only with extreme caution.
Now, how do we pay?
If you read much on this subject you will come to the wisdom that it is better to pay more for new production than renewal. This should be obvious. If you’re hiring someone to sell pay for that. Pay someone else for service or pay the salesman less for service. If you don’t you will find that the “producer” plateaus in 3 to 5 years. Bank on it.
If you’re selling personal lines you can’t pay as much as for commercial lines because the service transactions are higher and cost more. 25% is usually the limit for a personal lines producer. While we’re it what does a PL producer do on renewal? Anything? Or is that all done by a CSR? If it is, as it is in my agency, don’t pay renewal commissions at all on PL renewals?
Finally, do we pay a salary while the producer is building the commission volume? Only if you want a quality employee. Think about it? What kind of employee do you get when you make them take all the risk by working on straight commission and you’re paying a rate, that makes long term sense, but makes it hard for someone to build a living fast? That’s right. You get the bottom of the barrel.
And you get lots of turnover and lots of headaches. Does this make sense? Or would it be better to hire another support person so you can spend more time selling. You already know you’re good at it right?
Still looking for an insurance producer? Ok hard case! Next time we’ll talk about managing this prodigy!