Few agencies consider the cost of new producers. Chris Burand explains why agencies wishing to grow or perpetuate need to focus on this issue.

If you don’t have a line item for new producers, is it because you don’t plan to hire any? Or are you planning to use your cash reserves to cover the cost (assuming that your agency has cash reserves, which most don’t)? New producers cost money, which has to come from somewhere.

New producers require a sizable commitment and investment. New producers are like proposals — not all succeed. So in addition to expenditures, I recommend budgeting for failures. Using an optimistic 50% failure rate (most agencies’ failure rate is probably more like 75% to 90%) and assuming that all failures are fired after two years (a big assumption, because many agencies wait three years or more), there’s an additional net cost of $59,000 for every successful producer.

Hiring a new producer is a very expensive undertaking. Failures are especially costly, because your agency never makes that money back. Therefore, you should do everything possible to make sure that your producers succeed. These steps should help.

• Hire one at a time: Avoid training multiple producers simultaneously. No agency with less than $5 million in annual revenue should be training/developing multiple producers who are at the same stage of development. At best, such an agency might get by with having one first-year producer and another with three or four years of experience — if the agency takes all the steps below.
• Test: Many new producers fail because they aren’t cut out for the job. According to the “New Producer Profile,” published by The National Alliance Research Academy, 53% of new producers cite cold calling as the toughest aspect of their work. In other words, more than half of new producers are reluctant to carry out one of their most important tasks. You can assess a candidate’s level of call reluctance through testing. With the knowledge gained, either hire people who don’t have call reluctance or provide training to help those who need to overcome it.
• Train: Sales and technical training also increase the odds of success. The days of agencies training new producers on their own are long gone. Occasionally, an agency will succeed in this effort, but these are exceptions. Give your new producer a fighting chance by providing proper training. You can choose from a number of producer training schools.
• Manage proactively: Agency management often takes a reactive stance to producer development. In other words, agency managers respond to new producers’ problems, questions, and requests for assistance. That’s fine, but if you interact proactively with new producers every day, they’ll become more successful faster. Set goals together, monitor results, discuss progress, and role-play. There are many other steps you can take to increase their involvement with new producers and boost their chances for success.

New-producer success is especially important for small agencies, because the cost of developing a new producer is fixed; in other words, the cost of developing a new producer, as a percentage of agency revenue, is far higher in small agencies than in large ones. So, it’s all the more important that small agencies succeed in this effort. An extra $5,000 for training might make the difference between failure and success.

Budgeting for new producers every year makes financial sense. If you don’t actually spend the money, put it in a capital account for future producer development, which will ease budgetary constraints later.

Budgeting for new producers also creates a proactive environment. A line item in a budget elicits action, prompting you to look for new producers and have the funds ready to hire them, rather than passively wait until good candidates come along and then try to figure out how to pay for them. A budget item increases the chance for things to go right — for luck to meet preparedness and create opportunity.

Postage stamps aren’t the lifeblood of your agency, but you budget for them. New producers are! So shouldn’t you budget for them too?