The key to hiring any producer (like any other experienced person) is the quality of the hire, not the cost of the hire.
Many agents have made the mistake of hiring cheap with the idea in mind that they won’t lose as much if the producer doesn’t perform than if they hired a more expensive version with the same risk of lack of results.
Agents have experienced long duration producers and other employees who haven’t lived up to their promises and have stayed with the agency for many years, draining the agency owners’ resources (time and money) with little or no results. They fear similar results with their upcoming hires, so they choose to hire less experienced or less expensive employees hoping for better results but risking less if the employees don’t live up to their expectations.
The answer is to HIRE CAREFULLY and hire the best candidate you can find with the cost as an important by-product, not the determining factor in the hire.
HIRE CAREFULLY
Any producer who can’t provide his/her track record of sales is suspect. “Sales Personalities” like to keep track of what they do, both to assure accuracy in compensation and as a measure of their success compared to others and to their own past performance. “Sales Personalities” are motivated by ego as well as by money. You are seeking someone with a high ego and confidence so that they are not discouraged by the rejection they will get along the way. They know that many prospects are not properly covered and that their experience is valuable in providing the right type and scope of insurance for the clients. If prospects choose not to participate, it is inevitably the problem of ignorant prospects, not of lack of sales ability and knowledge.
Hiring decisions should be based on experience and on the ability and desire of the candidate to market and to be on the phone with prospects the majority of his/her time. In recent decades, we have found more successful female personal line producers than male but we don’t disregard good, experienced male producers as well.
COMPENSATION
The best Sales Personalities will ask for higher commission rates to take all the risk themselves. They “eat what they kill” so they risk low pay in slow months and strong compensation in successful months. However, this is tempered with the need for steady pay for normal living expenses.
If you are lucky enough to find someone who will trade the risk of low and high months for the highest compensation rate, they should earn 40%/25% Base and Growth commission. This treats the Personal Lines Producer similar to Commercial Producers since the producer is willing to take the risk in order to reap the rewards of success. See “Growth Loaded Compensation” elsewhere in this Issue for more information.
You will find that most Personal Lines producers are NOT willing to share the risk because they have families and obligations that require a steady income to support them. They are best paid on Salary that will validate up to a specific level of commission income that they generate and a growth commission that gives them a bonus in the year that they achieve the growth and a higher salary in the following years as they continue to growth the agency’s book of personal lines business.
For instance, if they require $48,000 to support their normal annual expenses, the agency will pay them $4,000/month in compensation with the expectation that they will achieve $48,0000 of gross agency commissions in the first year (or in the first 18 months if the amount of guaranteed income is high enough to warrant that goal. This represents the agency’s investment in the new producer in order to build the agency’s book of personal lines business.
The eventual value of the producer on salary is 15% of the commission generated by the agency book of business built by that producer. However, at a $48,000 salary, it will take two to three years for the producer to validate that compensation (at 15%) while the book of business is being built (based on the average annual premium of a typical personal lines account in the geographic region served by the producer).
Gross Commission $48,000
@ 13% avg comm = $370,000 Premium @15% avg Comm = $320,000
@ $1,000 avg Prem/acct 370 new accounts @ $1500 avg Prem= 213 new accounts
@ 2 accts/day = 740 service days @ 2 accts/day = 142 service days
@240 days/yr = 3 years to validate 60% into the first year to validate
As you can see validation depends on average commission rates, size of accounts and expectations of daily, weekly and monthly goals.
Goal Setting
For a new producer validation schedule to work for you the producer must understand and keep track of the required activity for the producer to achieve sufficient results to keep that producer on the payroll as they proceed to full validation. Call me and we’ll help you with goals setting from number of sales required for the requisite compensation to be validated all the way to the number of suspects that must be contacted to achieve sufficient sales activity to assure that validation.
Be prepared to support a producer for one to three years as they validate their compensation. Typically, validation is 18 months in and 18 months out. That means that the producer will be behind the agency – they will have earned more than they have validated – for the first 18 months and will generate sufficient revenue to repay the agency in the second 18 months until parity is reached.
Short Term Goals
Each year the sales goal, proposal goal, and sales call goal will be established in accordance with the compensation of the producer. The producer will keep records toward the achievement of the goals and the agency system will back those records as the form outside checks and balances (“Trust but Verify” President Ronald Reagan). The producer must know through their signature on the Employment Agreement that their continued employment is dependent upon their success in each of the categories of work effort (Quotes, Sales Calls, Suspect Leads) that leads to the Sales and Annualized Gross Commission Income that will validate the renewal of their employment from year to year.
To that end short term goals are created through the validation period that once achieved and surpassed will permit bonuses during the validation year.
In other words, if the first year goals are $24,000 and the producer achieves $35,000 of gross commission income in the first year, (s)he will get a bonus of 20% of the commission produced in excess of the logical, realistic sales goal for the year. This producer would get an additional $2,200 for the excess produced over $24,000 in the first year. This level of production puts him that much closer to full validation in the second year and the same form of bonus would be allowed for second year production above goal.
After validation, the producer’s annual salary increases to 15% of the total commission produced under his/her producer code and new goals are established for total production in the following year.
Producer compensation is very individualized based on the type and value of the producer for the agency and on the needs of the producer to incent joining the agency’s staff.
Personal line production is a templated function much more-so than commercial lines production. If the producer does enough initial contacts and follows up sufficiently, personal lines production becomes a numbers game. If the producer achieves the realistic goals, sufficient revenues will be generated to pay for the producer and profit the agency. If not, the lack of successful ACTIVITY, not sales results, will tell the agency owner that the producer is not working and the ties must be separated quickly.