Many agents have chosen to measure their productivity in terms of Revenue per Employee assuming that growth in that measure alone is a valid indicator of productivity advances. Agency Consulting Group, Inc. uses three integral measures of productivity and suggests that insurance agencies measure productivity similarly.
1. Revenue Per Employee – measures productivity based on agency Net Revenue (after paying brokers for non-owned business placed through the agency) and number of employees. This would be valid as a point of comparison if premiums and commissions were the same across the country and if employees were generally paid at the same rate. Unfortunately, none of these assumptions are true. Premiums vary by region and population concentration. Commission rates, that used to be fairly standard, are now showing signs of flexibility based on the profitability of a region (or how prone a region is to violent weather). And we all know that the cost of employees varies tremendously between the urban areas and rural areas. So while Revenue per Employee may be a valid gauge of specific agency performance, it should not be used as a raw comparative calculator against a peer group.
2. Compensation per Employee – measures the changes in cost of living, personnel compression issues, and availability of skilled labor. Besides the efficiencies being generated by automation and automated marketing, compensation is the largest and most stable growing cost of an agency.
Spread – is the difference between Revenue Per Employee and Compensation per Employee. Spread measures the non-compensation dollars available to an agency to spend on overhead and — PROFIT. Spread is the best general measure of productivity since agencies MUST pay for employees (a generally non-controllable cost) and only have control over their overhead costs to generate profits.
Revenue Per Employee is a good gauge of year-to-year productivity gains in a specific agency. Compensation per Employee must be measured against revenue per employee to measure whether the agency is gaining ground, just supporting increased personnel costs, or losing ground in the race for fair profits. Spread is the best gauge of your agency’s performance versus that of your peer groups. Consider maintaining these three measures every year to properly measure your agency’s progress.