My last post described what Harrison Brooks of Reagan Consulting had to say to those who attended IIAG’s annual convention earlier this month about major trends affecting the insurance industry. He also had some advice on how an agency can determine if it is doing what needs to be done to be successful in the long term. That advice focused on three measurements that will allow an agency to compare itself to the most successful agencies. These three measurements involved sales, hiring of new producers, and their validation.
Organic growth is the key to the long term success of any agency. Such growth is the result of increases in the commissions and fees received from an agency’s existing customers due to the sale of additional products and services to them and from new customers. The best way to measure this growth is comparing the amount of net new business revenue in a year to the prior year’s total net revenue. That fraction tells an agency its sales velocity. If the sales velocity is 15% or more, your agency is doing what the most successful agencies are doing. For an even more secure future, at least 7.5% of the sales velocity should be coming from producers who are under 45 years of age. (For a more information on the concept of sales velocity, click here to register for a free webinar on that subject on June 28, 2017.)
In order to sustain organic growth, it is necessary to hire new producers. Mr. Brooks showed an amusing video of man on the street type reactions of millennials to the question of what they thought about working in the insurance industry. The comments made revealed a profound lack of knowledge of what is involved in that industry. Mr. Brooks’ recommendations for how to interest millennials in becoming a producer was to emphasize four things: (1) it provides an opportunity to build relationships with customers, (2) it involves consulting with customers about solving their problems, (3) it provides the opportunity to build a book of business, and (4) it involves providing quality products they can believe in. It is not about hard selling people to buy things they don’t need or want.
The way to determine whether an agency is hiring enough producers each year is to compare the number of new producers hired to the number of producers working for the agency during the prior year. That fraction tells the agency its hiring velocity. Anything 20% or above is an indicator of a healthy agency.
Once hired, a new producer has to quickly be able to pay for themselves. Mr. Brooks recommended giving a new producer only six months to show they had the ability to do that. If they did not show such ability, he advised firing them and hiring someone else. A successful new producer hire will fully validate themselves in three to five years. Mr. Brooks standard for full validation was bringing in $40,000 to $60,000 a year in new business and building a book of business that at the end of the above time period would be worth (at 1.5 times commissions) what it cost the agency to train and pay them during that time period.
Mr. Brooks advised not to let the failure of a producer to validate himself or herself in three to five years discourage new hires. The most successful agencies only have new producers meet that standard a little over 50% of the time. So a roughly 50% failure rate is to be expected. To give new producers the best chance to validate themselves, Mr. Brooks recommended having a well thought out plan for training and mentoring them and sticking with that plan.