Transformation Advisors, Inc.
B.I.G. Strategies for Business Excellence
In This Issue: Producer Compensation - You Get What You Pay For
Volume 10, Issue 3

In spite of the continuing soft market (the permanent soft market?) and the troubling economy, there is opportunity for growth. But it won’t just happen. To grow your business, you will need to be better than you’ve ever been as a business. Better than your competition—and your competition is now bigger and more visible than ever before. To be better than the competition, you need a strong, motivated sales force.

And producers are motivated by money.  That’s not always true for every producer and it’s not true all the time for any producer.  But as a basic structural component of sales compensation, it is a reasonable assumption on which to base a plan. 

There are dozens of ways to structure producer compensation and hundreds of variations on a set of themes. When we work with agencies to design, or improve, their producer compensation program, we say first and foremost, pay for what you want.  And don’t pay for what you don’t want. 

What does that mean?  Here are some common examples:

  • If you pay higher new business than renewal commissions, then selling new accounts will be relatively more important than retaining existing customers.  Is this what you want?
  • If you pay a level commission rate for all business, then three small accounts will pay the producer as well as one large account. Is this what you want?

And in both of those examples, once the producer has reached his (or her) desired level of income, the producer has no desire to keep growing.  If the producer doesn’t grow, the agency doesn’t grow.  This is definitely not what you want.

For the agency, if you’re not growing, you’re falling behind.  For the producer, once you reach your own personal financial goals, “money” is no longer the motivating factor.

So, whatever your compensation strategies, they should support the agency growth strategy.  Let’s look at ways to make the above two methodologies work to pay for what you want.

  • Pay a higher new business commission—but only on net new.  In other words, the lower commission is paid for new business until the renewal threshold is exceeded.
  • Pay one level commission for accounts of a certain size and another level commission for accounts below that size. Define “small,” “medium” and “large” as a way to increase overall revenue per account, as this is a key profitability and productivity driver.

And here's another approach, use growth as the primary incentive.  Pay a level commission for maintaining a book and a higher commission for growing the book. 

If you find your agency is paying too much for what you don’t want… If you are not getting what you pay for… It may be time to take a look at your producer compensation. Transformation Advisors can help. We can help you identify where your plan is strong and where it could use a lift.  Give us a call or email pam@transforamtionadvisors.com

This is one in a series of newsletters and blogs on Producer Compensation.  You can view the most recent article here.

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Pam Millard

Pamela A. Millard 530.295.1083

Transformation Advisors isn't just a catchy name.  It's what we do and it's how we can help you transform your successful insurance business to one where every employee is a partner and every customer is an advocate.

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Producers as Profit Centers

 

“Create the kind of climate in your organization where personal growth is expected, recognized and rewarded.” 

- Author Unknown

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