Every year agencies decide to adopt producers or Relationship Managers who have not previously been in a sales role. They have no books of business to support them and many have been accustomed to salary compensation that provides them a stable financial environment from which to pay their normal household and living expenses.
Hopefully these “sales newbies” have been tested to determine that their personalities are attuned to a sales culture. But the question that arises most frequently is “How to Pay New Producers.”
We have evolved a compensation program as a part of our Asset Protection Model of Relationship Selling that works in both a relationship selling and in the traditional price/quote model of sales. The program revolves around a few realities of life:
1. Everyone needs a certain amount of money to pay their normal bills and keep the financial stress of daily life minimized.
2. Most people in sales roles want more than the basic minimum compensation to pay their bills, both for the finer things in life and as a gauge of their sales success.
3. Agencies can only pay producers/RMs for their productive capacities. Paying beyond those productive capacities over a prolonged period results in diminished profits and eats away at owners compensation and equity.
4. Regardless of how the we define the role, the productivity of a salesperson depends on the volume of new clients and revenue the producer/RM brings to the agency and retains for the agency.
5. AND, MOST IMPORTANTLY, SALES DEPENDS ON ACTIVITY. If a producer is not actively pursuing new accounts and growth revenue, (s)he is an Account Executive – still a valued employee, but not a producer/RM.
Agents who try to pay producers/RMs a compensation (salary, draw, or whatever the title) that is below the producer’s basic needs may be keeping that producer hungry but it is a hunger fed by panic and customers and prospects will easily read that in the producer’s attitude. THE MINIMUM COMPENSATION THAT MUST BE PAID TO A NEW PRODUCER IS WHAT HE NEEDS TO PAY HIS BILLS EVERY MONTH.
When you hire or advance a person into a production role, both the agency and the employee is taking a risk. In order to permit the employee to succeed, we must give the producer the luxury of time and the necessity of training, coaching, and counseling. You are much better off not hiring a producer than hiring a producer and setting him off to sell insurance with no training nor guidance. You will eventually have to rehabilitate or terminate this type of person unless his is the one in a million self-starter who needs no management. And, frankly, if you are that kind of risk-taker, you will earn much more money in Las Vegas or Atlantic City at the tables than you will hiring a producer and hoping for the best.
So, assuming that you will provide the right training and guidance, the time needed to develop and mature a new producer is from one to three years. The minimum time needed to validate any compensation level is ONE YEAR. GIVE THE PRODUCER A ONE YEAR GUARANTEE THAT IF (S)HE DOES WHAT IS ASKED OF HIM, THE COMPENSATION LEVEL IS ASSURED FOR THAT PERIOD.
So you know that a producer’s success depends on ACTIVITY, that his compensation must start at the amount needed to support his family’s normal monthly expenses and that you must give him a year to validate his compensation with the productive results of his activity.
Agency Consulting Group, Inc.’s Producer Validation and Management Program provides the tool to identify the activity levels needed for a new producer to validate his compensation levels in each year of the first three years of his tenure with your agency. The validation schedule is based on the agency crediting 100% of the producer’s revenue generation in the first year toward his compensation validation, 50% in the second year and 33% in the third year.
Our studies indicate that most producers in the U.S. (in profitable agencies) earn between 30% and 33% of the commission dollar in compensation. Larger producers ($500,000 in commission and above) are more profitable for agencies and earn higher percentages of commissions for themselves without negatively affecting agency profits. However, the vast majority of producers in the U.S. generate less than $500,000 of commission income to the agency each year. So our goal is to allow the producer to build the book of business to the point that his income is 1/3 of the commission income he has generated and then position him in one of the other compensation programs (New/Renewal or Base/Growth) for his future growth and motivation.
In the first year of the program, we validate his results with sales call activity that would reasonable result in sufficient sales to generate a commission income equal to his gross compensation need. While the agency still loses money during this period (benefits, payroll taxes, housing, support, T&E, etc), the rationale is that the producer is taking out what he is bringing in.
In order to validate the second year, the producer is expected to retain the vast majority (90% or more) of the revenues he generated in the first year. Since our goal is to build him to the 30% to 33% level that is common for compensation for producers, his goal is to generate sufficient SALES CALL ACTIVITY to generate enough new business that his total gross commission from new and renewal is twice his compensation requirement. In the third year, the renewals will build from years one and two and his new business generation will be required to validate him at three times his income level.
Once he reaches three times income in gross commission production, his compensation method changes to pay him 33% of his gross commission in one year as the next year’s salary or draw.
In every year, once the producer trainee clears his revenue goal and meets his Sales Call Activity requirement, he will gain a bonus commission on any sales made that brings his total commission above his validation goal.
This program is simple enough to be managed manually once you have shown the trainee how much weekly sales call activity he needs to commonly achieve the level of revenues that validates his goals each year. However, over the last twenty years we have built this program into a spreadsheet program that will a) help you logically show each producer the level of sales call (physical visits to people we do not yet insure) activity needed to achieve HIS compensation expectation and b) manage the process to tell you and the salesperson whether he is living up to his charter and the compensation level he requires.