One of the most common questions that agency owners ask about their producers is how they are doing compared to their peers. Is the new business commission they are bringing in more or less than average? Is their total book size similar to other producers?
According to a recent Big I best practice studies, producers in smaller agencies typically generate approximately $40,000 in new business commissions per year and have an average book size of $240,000 annual commissions. This is an average that can vary based on the lines-of-business sold. Producers writing mostly personal lines are lower in size, producers writing mostly commercial lines are larger, and agents writing both lines consistently fared better than average.
Knowing these target benchmarks is the starting point. Using an average new business commission percentage of 15%, producers would have to generate approximately $267,000 annually in new business written premium to achieve $40,000 in gross commissions. Further, knowing other KPIs such as close ratio and average account size, agency owners and producers can start backtracking the activity required (i.e. proposals, quotes, leads) to reach these targets.
For many newly hired producers, it may take six-to-eight years (depending on retention and/or rate volatility) to build to the $240,000 average commission book size target. This highlights the importance of making sure you are hiring the right person and putting them in a position to succeed.
Agency owners can take a few steps to improve their chance for success. First, the right person matters. Using a multitude of sources for potential hires involves references, previous sales experience, social media, and other traditional recruiting methods. It is also important to utilize profiling assessments that will evaluate the potential candidate’s personality and skill set.
Second, structuring a compensation plan that motivates the employee, but also generates sufficient long-term margin, requires a thorough analysis of the numbers. Carefully consider the revenue split needed to cover operating costs, and the desired margin to make it worth it to an owner. You also need to balance this with the compensation needs of the producer.
Third, lay out a path for success. As an agency owner it is your job to manage the producer. You need to make sure that they are making the number of contacts necessary to hit their goal. You also need to make sure they are going after business that the agency is capable and willing to write. Make sure that your producer is not failing due to any training deficiencies or service inefficiencies within the agency.
Finally, monitor results and know what your breaking point is. If a producer seems incapable of hitting the necessary goals, do not be afraid to move on. Letting an ineffective producer linger within the agency can consume valuable resources that could be used more effectively elsewhere.
If you have any questions about hiring a potential producer, please reach out SIA of Northern Ohio for additional assistance!