Help your top producers grow your agency & and their income!
Many of our clients find themselves the recipients of a decidedly mixed blessing. On one hand, they are successful because they employ many of the top producers in their community. On the other hand, since many of the community's top prospects already work in their agency, there's not much sales talent left to hire. They're ready, willing, and able to invest in future growth, but don't know quite how. If only they could find a way to replicate their top producers, their agency's market share would balloon.
Since effective cloning of humans is still years away, replication of top producers is, for the time being, impossible. But a few of our top clients have found a way to leverage the talents of their top producers, which in some ways is preferable to finding new ones. Imagine sitting down with your top producer and making the following proposition:
'You are our agency's most talented producer. With the experience, relationships and technical expertise you've built over the years, you are in your prime in terms of sales effectiveness. For the sake of your quality of life and for the good of the organization, we need to free you up to do more of what you enjoy the most: Selling.'
'To really free you to sell, we know we'll need to create a new position to support you in a new way. An account executive, perhaps, that is both highly relational and highly technical. Somebody you would be comfortable turning over a significant amount of responsibility to. Somebody who might free up 25% to 35% of your time.'
'We understand this person will cost money. A lot of money. But the cost of not hiring him or her, as measured in terms of your quality of life and the opportunity cost of having you not producing new business, is greater. So we will pay the money.
'All we ask is that you use the free time as productively as possible. Use it for large account production, or use it to mentor our other producers, or to bird-dog additional sales talent. However you use it, take all that you have learned up to now, and capitalize on that knowledge for the good of the agency and for the sake of your professional development.'
Costly Mistake or Wise Investment?
Does this sound grossly irresponsible? Assume you make the offer described above to your top producer. You go out and hire an account executive with a pay and benefits package totaling $100,000. Your top producer, with 25% of his time freed up for new business production, produces an extra $50,000 in commissions, and does so for five consecutive years. Combining the pay for the account executive (which we assume to grow by 5% per year) and the 30% commission rate you pay your producer for the new business, you incur a total of $115,000 in expenses against $50,000 in commissions in the first year. At this point, you've lost $65,000 pretax ($39,000 after tax) and your dream of being asked to write the forward for Warren Buffet's next book on investing is fading fast.
In the second and third years, you still lose money, but thankfully not as much. By the fourth year, you actually earn a modest profit on your investment. By year five, you earn a nice profit, but you are still in the red overall due to your early losses. At this point, you have lost an average of 9% per year on your investment. Ok, maybe it was a bad idea.
Hang on, though. The savvy agency principal knows that to stop here is to paint a picture that is hopelessly incomplete. There is an asset that has been created here, and to ignore it is to miss the point of being an agency owner entirely! Assuming the book of business now stands at $250,000 in annual commissions, it has a value in the neighborhood of $375,000, or 1.5 times revenue. Why 1.5? Because it is probably a highly profitable book, given that it has been produced by somebody whose office space, health insurance and payroll taxes have already been paid for.
If you factor a $375,000 asset into the picture, the investment returns explode, going from negative 9% to 69% per year! Not a bad return for a 'sleepy' business like retail insurance brokerage.
Conclusion
The most common mistake agency principals make in evaluating reinvestment in their agency is that they think only in terms of cash flow, rather than value creation. They ask 'Why hire an account executive (or a new producer) if the net effect will be lower profits for three or four years?' The answer to their question is simple: You take lower profits for three or four years in exchange for a significant increase in your agency's value.
The ironic thing about this concept is that everybody wins. Your top producer will appreciate your desire to simultaneously enhance his quality of life and increase his income (and may actually question your motives!). The environment within your agency will improve as the additional growth will offer more advancement opportunities for the rest of your staff. And certainly you and the other shareholders will benefit substantially from high investment returns, with significantly less risk than you would assume if you were hiring new producers.
So now you have the evidence. Go out and find the support person you should have hired a couple of years ago!