B.I.G. Strategies for Business Excellence
Strategic Management to insure Business Is Great
In This Issue: Three Keys to Effective Producer Compensation
Volume 10, Issue 2

Sales are the lifeblood of any business.  And Producer Compensation is often one of the trickiest management issues you face.  You can’t afford to pay too much – but if you don’t pay enough, you can’t hire and retain quality sales staff.Are you getting the sales results you want? Is that a function of the market or is it a function of how you motivate and pay your sales team? Producer compensation is likely the biggest single expense in your agency.  As the market continues to be soft and the economy hard, it’s also likely you’re looking once again at how much – and how – you pay producers.

 In the spirit of KISS, we think there are three keys to effective producer compensation.  And by “effective” we mean producer compensation that ensures you:

  • Recruit the best candidates for each job
  • Retain the best sales people and keep them motivated
  • Reward the activity that helps you achieve agency goals and objectives

Here are the three critical success factors for compensation planning

First, your total producer compensation package has to be Affordable. It has to be cost effective.  Right now this is a real hot button issue for many agencies.  The market is still soft.  Revenues are still down.  Expenses aren’t.  But affordability shouldn’t be one of those things you only think about when things are tough.  Your compensation plan should be cost-effective regardless of the market or the marketplace.

The second requirement for success is that your plan be Goal Oriented. Your goals for producer compensation are more than just to increase sales or stop the bleeding – although that may be the place you need to start.  Go back to your Strategic Plan for the agency.  Who are you as a business?  As an organization?  Who are your intended customers?  What products and services do you provide?  What differentiates you from the competition?  If your compensation program doesn’t line up with the answers to these strategic questions, you need better alignment.  Why?  Because you will get what you pay for.  So be very sure you are paying for what you want.
And goal orientation needs to go both ways.  Remember that your producers have needs – goals.  If your compensation plan doesn’t address them, it will be less than effective.  Ensuring that your compensation plan helps producers meet their own goals is a key to being Competitive

And that's the the third requirement for a successful plan. Your plan needs to be Competitive to attract the best producers and keep them happy. It’s not just a matter of How Much you have to pay – but also How you pay it.  But being Competitive in the marketplace for quality employees often butts right up against that Affordability requirement.

Measures of Effectiveness
How do you know if your compensation package is effective?
 
Try these three measures of effectiveness:
  • Start by asking – and answering What Can You Afford to Pay?  After you pay the fixed expenses and reasonable profit, how much is left to pay producer?  If you pay yourself last, and there isn’t enough to go around, your producer compensation is not affordable.  Understanding what you can afford to pay producers will also highlight  other expense control issues that need to be addressed.
  • Measure individual sales effectiveness by looking at the net new growth of each producer’s book of business.  New sales are important but retaining customers and revenue from year to year is key to long term growth and profitability. If there are plenty of new sales but the book is flat – that may be a function of soft pricing.  But it may also be a function of how you incentivize producers.
  • Measure individual producer profitability.  Your compensation plan may be in-effective, if your profit is coming from only a few producers – or from the “House.”  You really do need to measure the profitability of each producer's book of business – just as if each producer were a separate department or profit center.

This is the first of a series of newsletters and blogs on Producer Compensation. If you can’t wait for the next installment, give us a call or send email to pam@transformationadvisors.com.  And if you’d like some help measuring the effectiveness of your producer compensation, we have financial models and worksheets that come with consulting to help you compare your results to industry averages or build your own benchmarks for profit and growth.

Being an employer of choice is one of the seven key strategies that ensure your business will thrive in bad times and in good. Make 2010 your best year ever.

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Pam Millard

"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."

Pamela A. Millard
530.295.1083

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Producer Compensation

“The highest reward for man's toil is not what he gets for it, but what he becomes by it.”

- John Ruskin

 

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