Producer Management, Goal Setting and Performance

Sales management is vitally important to the growth and survival of an agency. However, as important as it is, sales management does not have to be a full-time job in most firms.

Often the task falls to an owner or the top producer in the firm. This is not necessarily a good idea, because sales management can take away time from the manager’s own sales efforts. The key to effective sales management is to set up a system to monitor performance and encourage the producers.

Ideally, once an effective sales management system is created, self-motivated and properly trained producers can essentially “manage” themselves. The sales management role, in this hypothetical situation, is to monitor performance, remove any unreasonable obstacles to production and create an overall environment for sales.

However, producers are human too, and in reality, need guidance and support in order to succeed on a regular basis. A good sales management system creates a structure for the producers to succeed while minimizing the effort required by the sales manager.

Producer Performance
What is an acceptable level of producer performance for experienced, “seasoned” producers? It depends on a number of factors, such as:
• available producer support;
• sales skills of the producer;
• size and type of accounts in the geographic area;
• the competition and
• the local economy.

If performance standards are not set for producers, they will set their own—which most likely will be lower than what management expects.

Ideally, management can use the performance of the best producer who has ever worked for the firm as a guideline for “top” producer performance. The average property/casualty commissions per producer, from firms in our database, are in the range of $250,000 to $350,000. The range is based on size of firm, the location and the typical target clients of the agency. These commissions are not the producers’ book, but include “house” accounts and direct bill commissions of the firm, which are not necessarily commissions “handled.”

Well-run firms have $350,000 to $600,000 in commissions per producer. In surveys in which owners are asked what size book they would expect experienced producers to handle after three years in the firm, they report $150,000 to $300,000 in commissions handled, based on size of firm. In regard to their expectations for new business produced each year in addition to the books handled, the range is $30,000 to $65,000, based on size of firm. New business produced each year as a percentage of the book handled averages 18-20 percent.

For new producers without experience, approximately $100,000 in commissions handled is expected after three years, and new business of $25,000 to $40,000 in commissions per year. For new producers with experience (and without existing books of business) $150,000 to $200,000 in commissions handled is expected in three years, with $35,000 to $50,000 in new commissions produced per year.

Setting Producer Goals
Producers should be involved in the goal-setting process. Each year, every producer (including seasoned producers) should be given a new production requirement, for example 10-20 percent growth, net of attrition. The producer then should let management know how this production will be accomplished (for example, the number of quotes and customers that need to be written to accomplish his or her annual objective).

Based on the producer’s own hit ratio and size of account written, it should be determined whether or not the production goal is achievable. The goals should be broken down into monthly quote-to-write activity to make it easier to manage producer performance. Management actually needs two sales goals for each producer. One goal is the required new business increase in the number of accounts or commissions handled by the producer. The second goal should specify the type of account as well as the source of the new business to be pursued (such as account development, writing new accounts from referrals, target marketing or direct mail programs, etc.).

Sales Meetings
Effective sales meetings need to be held so sales activity can be properly monitored. Specific sales activity should include new business produced, lost business, hit ratio for each producer, prospect activity, what referrals have been obtained from new sales, etc. These meetings also should provide owner and non-owner production staff with information on markets, sales goals, collection problems and service backlogs.

There should be individual coaching of producers at least twice a month, in addition to the monthly sales meeting.

Producers have egos and need recognition. These sales meetings are also an excellent time to recognize superior performance, encourage double-teaming, and provide support by coaching and training.

Hit Ratios
Another sales management key is managing the producer’s hit ratio (the number of risks written to the number quoted). A hit ratio of 20 percent to 25 percent is average for commercial lines, but obviously the closer to 100 percent, the better. In personal lines, the hit ratio is usually 40 percent to 60 percent. If the hit ratio is improved, the firm’s expenses will be reduced greatly.

Hit ratios can be improved greatly when more time is spent initially qualifying the prospect. Key areas to uncover in the first critical 20-to 30-minute interview are: what is most important to the prospect in the insurance program; what are the politics, price and product the producer is competing against; and has the producer built a good rapport after this initial meeting, etc. Survey forms and collection of copies of existing policies should be completed in the second interview after the prospect has been properly qualified.

Producers can greatly improve their hit ratio on writing new accounts when they have good marketing/placement support. More and more firms today are using a central marketing person or department to help write new medium-size or large commercial accounts.

Sales management is critical
To have a successful, growing firm today in these difficult times, proper management of sales and producer performance is critical. Sales management can be easy if a system is established that monitors specific sales activity and performance. Effective sales management not only will reward the owners, now and in the future, but also will assist non-owner producers in achieving their goals.

About the Authors: Bill Schoeffler and Catherine Oak are partners in the consulting firm, Oak & Associates, based in Northern California. The firm specializes in financial and management consulting for independent insurance agencies, including valuations, mergers acquisitions, clusters, sales and marketing planning as well as perpetuation planning. They can be reached at (707) 936-6565 or by e-mail at catoak@gmail.com.

10 Ways to Be a Competitive Buyer in a Seller’s Market

Many agency owners would like to acquire another firm that is compatible with theirs. Agency owners today want to be buyers of agencies with books that might be a great fit with the same type of business the agency already writes. So, what is it that makes buyers more attractive to sellers?

In our consulting work matching buyers and sellers, we find that there are certain attributes of buyers that set them apart. This article addresses the attributes that could help buyers win the deal.

Remember the price that a buyer is willing to pay is not everything. Sellers have spent decades growing their company and are often emotionally attached to their staff and clients. Owners want to see the firm succeed after the sale.

For most firms however, organic growth is always the best way for an agency to grow. However, organic growth often cannot provide the level of growth that is needed for many different reasons. When that is true, these acquisitions of agencies or books can greatly help the agency acquire the volume they feel they need to attain in order to be a larger independent player in the marketplace or with their markets. If the firm is publicly traded they may need to provide more revenue to the owners or stockholders, so they may pay above average prices.

Today is a seller’s market and that means that buyers must have some flexibility.

The attributes that make most buyers competitive include:

  1. Be flexible. Allow the practices of the seller’s producers to remain. For instance, allowing producers to keep their current compensation plan that may be higher than that of the buyer, including paying for accounts at a lower level size of account. This can be a critical deal breaker initially. The buyer can easily change it to their plan over time. For example, paying 25 percent renewal commercial lines commission on accounts under $1,500 in commission, versus 30 percent for accounts over $500 in commission. Grandfathering can be used for this for the existing book and new accounts could fall under the new program.
  2. Allowing producers to refer in new, small commercial lines and personal lines accounts to the agency and receive a first year only commission.
  3. If the seller has more efficient processes, talk to the new employees and see what they do differently before training them on the buyer’s systems and procedures. By doing so, buyers can improve their operating efficiencies.
  4. Some sellers won’t sell to an agency that does not have the same automation system, especially if the selling agency had a hard transition and the owners are not going to retire. From the start, the buyer should make it clear that they will keep the current system for a period of time and will also not make the seller pay for the change.
  5. The buyer needs to be open to allowing the current owners to stay on as producers. Or, even to just have a place to go while they transition their book. Sellers often don’t want to leave for a while. If the seller’s office is a separate location, maybe the seller can also help manage the branch location for a period of time. Going home and being there every day to do the “honey do” list, often keeps those owners from selling. This is especially true if they don’t have other hobbies, like golf, hiking, traveling, etc.
  6. Buyers that will listen to what is important to the seller and allow them those desires often win. Example: keeping the owner’s perks in place at a reasonable level or giving key employees a chance to shine under someone else’s management, such as a son or daughter.
  7. The terms of the deal can be more important than a high purchase price, especially tax issues. Buyers who will allow an agency owner’s family member, such as a son or brother to remain in the agency if they are capable and productive will win out. If they are in need of some training to be at the level the buyer wants them to be, then giving them that training can also work. Testing can also be done by the buyer before the sale on questionable family members or key employees to see if they have the right characteristics for the roles they are in.
  8. Allow the best of both firms to survive. Learn from the other and don’t assume one’s agency is superior. This could be discussed going into the deal so there is not an attitude of “it is our way or the highway.”
  9. Service of the seller’s clients will be similar or better. This is very important to most independents because a big change can affect clients and if they leave, the earn-out of the seller could be affected and they might earn less money.
  10. Sale of a C corporation is a problem because of the double tax if assets are sold and not the stock. If there are few producers, mainly the owners, then personal goodwill can be used and will save the owners the double tax.

Remember today is a seller’s market, which means that buyers must have some flexibility. When an agency is a good “fit” with the buyer, the price can usually work itself out with willing parties, especially if the attributes in this article are in place or an option. Having a third party to assist also can help.

There are key compatibility issues that buyers and sellers need to keep in the forefront when determining if a seller is a good “fit” for a buyer. These will be discussed in an upcoming issue.