To get an accurate assessment of your agency’s progress, evaluate productivity measurements at least once a year.
Many agents have chosen to measure their productivity primarily in terms of Revenue per Employee (agency net revenue after paying brokers for non-owned business placed through the agency) divided by the number of employees.
This would be a valid standard if premiums, commissions, and employee compensation were similar nationwide. However, premiums vary by region and population concentration; commissions that used to be fairly standard are now showing signs of flexibility based on a region’s profitability, or vulnerability to violent weather; and employee compensation costs differ significantly among urban and rural areas.
So although Revenue per Employee might be a valid gauge of your agency’s performance, you should not use it as a raw comparative calculator against a peer group. Agency Consulting Group, Inc. recommends using two other integral measures of productivity:
- Compensation per Employee measures the changes in cost of living, personnel issues, and the availability of skilled labor. Compensation is the largest and most stable growing cost of an agency (other than automation and automated marketing).
- Spread measures the difference between Revenue per Employee and Compensation per Employee. Spread will give you the non-compensation dollars available for your agency (overhead, and profit). Spread is the best general measure of productivity because you must pay for employees (a generally non-controllable cost) and depend on controlling your overhead costs to generate profits.
Revenue per Employee can provide a good gauge of year-to-year productivity gains in your agency. You should measure Compensation per Employee against Revenue per Employee to measure whether you’re gaining ground, just supporting increased personnel costs, or losing out in the race for profitability.
Spread offers the best gauge of your agency’s performance compared with that of your peer groups. To get an accurate assessment of your agency’s progress, we’d recommend using these measurements at least once a year.