26. Staffing Your Insurance Agency for Optimum Profit
Save $25k to $50k or More in Staffing Expenses
This Year & Every Year by Having
the Right Number of Team Members
at the Right Base Salary Amount
- Staffing the agency profitably and prioritizing the renewal agency + focusing on P&C renewals, is crucial.
- Determining the right number of team members can be challenging and often relies on inadequate information.
- Analyzing income statements separately for renewal and first-year sales helps ensure overall profitability.
- Overstaffing can be costly, while proper staffing can lead to significant savings and financial growth.
- Paying base salaries helps incentivize employees to generate renewal sales, which are crucial for stability and success.
Full (Edited) Transcript
Welcome, everybody. Hope you are doing great today. We're going to be talking about how do you staff your agency for optimum profit. A lot of times when I talk with insurance agency owners, they're not sure how many team members they should have. They have ideas, they look around them, they look in their marketplace, and they see different people, the amount of team members they have. And sometimes they'll just go based off of that. Very often they don't even have the numbers of the agency that they're comparing themselves with. They'll just look at the building and they'll say, Okay, well, that person has a building, or that person seems to have this many people, or it's an office building that has five people or four people. And there's not a lot of science to how they're determining do they have the right number of team members. So very often they're either wasting 10, 20, $30,000 of money on an annual basis without even knowing if they need more or if they need less. I'm going to share with you a more strategic, scientific way to help you save anywhere from 5, 10, 15, 20, 30, 50,000 a year in staffing expenses this year and every year by getting the right number of team members at the right base salary amount.
The first thing we want to do is keep in mind your basic objectives for your insurance agency. The first objective is always to get your renewal agency staffed profitably now. That's the part of your business that has to do with your P&C renewals. Regardless of whether or not you have great production, even if you're not hitting your company goals, we want to hit those goals. But even if you're not, we need to first make sure that you're staffed profitably, and this allows you to be a business owner, not an employee. The second thing is to then create a profitable growth plan for your agency in the future. Decide how you want your agency to grow, know what positions you want to hire, and then find the people that fit those positions and really just let go of everybody else. Every other plan for the agency should be answering to these two objectives. Specifically, one of the videos we have called staffing your insurance agency dynasty goes more into the part two of how you create that plan and who you should be having in which chairs. There are actually two businesses within your business, two agencies.
The first is your renewal agency. That's your P&C renewals. It's like a magazine subscription business. People buy and you want to have them keep coming back more and more. Then there is your first year agency. It's a lot more like a car dealership. Basically, it's a commission-only situation where when people sell something, they make a big first year commission, but they may make zero or very low renewals. This might be more like your life insurance, your disability insurance, it depends. But more of those products where you make a big first time bonus and then you make nothing after that. If you have an accountant that works with insurance agency owners and if they really understand the model, this is what they would be doing. They'd be saying, You know what? I need to be looking at two parts of your business with two different income statements. I need to first look at that first agency, your renewal business agency, and I need to find out what the income statement is on that. What's the gross income for your renewals? What are the renewal expenses? What's the cost to keep your building open to keep the lights on to actually have the physical location that's necessary for you to do business?
And then if I subtract that, including also the base salaries of your team members that are servicing that renewal book, that would be your net renewal income. And then separately in your second agency, we'd say, okay, for your first year sales, we want to find out how much income you made in first year sales minus any either acquisition cost like marketing costs or paying team member bonuses. Then we figure out that what's left after that is your net first year income. If you can do this, this allows you to make sure that each part of your business is making money. And even more importantly for some agency owners, to make sure that if you're making money in the first agency, you don't get bored, which is what some do, and then start overspending to the point where you lose money in the second agency. Your worst case scenario for your second agency should be break even. You should not be losing money. There's this million dollar challenge problem issue that insurance agency owners have. The total investment in the team member costs anywhere from one and a quarter to one and a half times the base salary, or even sometimes more.
So if you have a team member with, let's say, a $40,000 base salary, that's going to cost the agency anywhere from $50,000 to $60,000. Now, without getting the math real hairy, let's say if you had a $35,000 or $33,000 base salary team member, that's still going to be about $40,000 to $50,000. Being over staffed by just one person can cost you a million dollars or more over a 20-year period. You could miss out on funding your entire retirement just by getting one part of your business model incorrect. No matter how much you sell, if you're unprofitable in the number of team members you have, you're always running uphill, you're always fighting against the win to keep up. Now, the solution is to get the right number of team members in the agency right now to grow steadily or aggressively, whichever you like, but to do it profitably at each step of the way. Align your staffing to optimize the most awesome part of your business model, that's renewals. And then fund possibly your entire retirement by getting one critical part of your business correct, and that is the staffing piece. Just to show you what this can look like financially and give you a little bit more details here.
Let's say you had $50,000 a year that it cost you per chair in your agency. Every year, if you staffed correctly, let's say you had been overstaffed by one person, and then you fixed that and you save $50,000. We're going to look at three examples. What if you were able to invest that money and it made either 4%, 7.5, 10%, or 10%. At 4% after 20 years, that'd be worth over $1.5 million for you to get that right. Over 20 years at 7%, it'd be nearly 2.2 million. And at 10%, it'd be 3.1 million plus. All of that is just based on you staffing correctly, getting the numbers right, and not having a situation where you're overpaying for something you don't need. So if you look at this from this two agencies concept, what you want to do is understand that they have different rules. The renewal income agency, your primary products are auto and fire, and auto fire, renewal specifically. Technically, you might have some renewals on your life insurance. You might have some renewals on your disability or whatnot. But the main renewals are going to come from your P&C. And so when it comes to staff compensation, base salaries actually come from renewal sales commissions.
So you might not directly pay a renewal commission to your team members, but in essence, what allows you to afford a base salary is those P&C renewals. And so, as a rule of thumb, you can afford to pay 30 to 40,000 of base salary for every 100,000 of P&C renewals. And in this model, what we would want to do is we'd want to have 60 to 80% of your gross income. We know that that's going to come from your P&C renewals. We want to make sure we're being aware of that. Now, on the second part, on the new sales, all lines contribute to new sales. You might have auto, fire, life, health, bank, annuity, disability insurance sales. The sales bonuses for your MOT members are going to come from their individual commissions on those sales. So you could afford to pay even as much as 100 % of your year-one commission if you wanted. You could even pay the annual bonuses or part of the annual bonuses because that's only going to be 20 to 40 % of your gross income. And again, as long as that's coming from that agency, you're fine there. Here's what it can look like.
There's three common examples. The first example, we have an agency where the agency owner has 100,000 of P&C renewals. Let's say this is happening for every 100,000 P&C renewals. You might say, Wade, I have 300,000 or I have 500,000 or 800,000, whatever it is. But imagine if for every 100,000 dollars of P&C renewals, you had a base salary for one person, let's say that's your retention person, your service person. You say, Okay, Wade, I've got a base salary for one retention person, 40,000. And then you know what? That person doesn't sell the life and the health and disability and the annuity. So I hired this multiline person. I hired them at a 40,000-dollar base. And I have some other fixed overhead costs, the cost of the building and so on. Then I have the overhead for each of those team members, their benefits and whatnot, and their payroll taxes and whatnot. So now it's costing me a total expense of $120,000 on $100,000 of income. I'm losing $20,000. So in order to make up for that, I need to hustle, I need to sell, and I need to stir up more business to pay this.
Ultimately, I'm not the agency owner. I'm just an employee inside the business. My name happens to be on the door, but I'm having to work to pay other people's salaries. In the second situation, let's say the agency owner learns a little bit and they say, You know what? I'm going to change this. Maybe let's say they think they're overpaying on their base salaries. I'm going to bring down those base salaries to 30,000 each. But in this example here, I'm still at a total cost of $100,000 of operating expenses for those two people. To make any money, I've got to sell. Again, I'm an employee of the agency. I'm not making money when I'm not working. In the third model, I have a chance to make 30 % profit. I've got 100,000 of P&C renewals, and I said, Look, I'm going to have only one person that's going to take care of those P&C renewals. Their primary objective is to make sure that those $100,000 of P&C renewals keep coming back. I can pay that person $40,000. There's another overhead cost of $20,000 in the agency, plus 10,000 for that team member. So it's costing me 70,000.
I might not even be getting life, health, annuity, disability sales, but I'm making 30,000 off of that 100,000 without having to work that P&C business. So on that segment of the business, not the entire business, but on that segment, on that 100,000, I'm a business owner. I'm making 30 % whether I work it or not. Or maybe to be really precise, maybe I'm supervising that part of the business four to eight hours per week, but I'm making this. If we take that 30,000 and let's say in total, I have $500,000 of gross P&C renewals, well, now I'm going to multiply that times five, so I'm going to multiply the 30,000. I'm making 150,000 of income off of P&C renewals. Again, I want to make sure that that part is profitable. I can be really generous with first year commissions on first year salespeople, but I don't want to have that second base salary where somebody is just selling, but they're not servicing the book because I don't need them to retain that book. I shouldn't be paying them. Why do you pay a base salary and why should you? In most cases, you should pay some base salary or perhaps draw.
The primary reason is that person is servicing the renewal business, and they're getting that people to come back. So a base salary is paid to someone who gets clients to continue renewing with you. These renewing clients generate renewal sales commissions for the agency. I want you to think about if you've ever been by McDonald's and they used to have those signs, maybe they still have them in some parts of the country where it's say, Over 30 billion served or over 50 billion served. Well, there's only eight billion people on the planet. Most of those sales are repeat sales, or we might call them renewal sales. That's where most of the money is coming from. When you pay such a person, a renewal sales specialist, or some people call them a service person, a base salary, you're really paying a commission on the renewal sales they're making. We like to call this work renewal sales rather than service because it more accurately defines what you're paying for. I'm paying you to keep the renewals coming back. And so if a renewal salesperson could not get anybody to renew, let's say, extreme example, you give somebody a section of the alphabet and they lose all of those customers, you'd probably fire that person.
Hopefully, you'd have figured it out earlier, but you'd say, Look, I can't pay you. You're supposed to have these people come back. You scared them all the way. I have nothing for you. On the flip side, if you had a renewal salesperson and they couldn't sell life, they couldn't sell health, couldn't sell disability, couldn't sell annuities, but they could take care of 200,000 of P&C renewals in this model? Well, you could pay them double the amount that you'd pay somebody to take care of 100 because it's math. They're just really good at renewal sales, maybe not good at multilining or P&C acquisition. So you paid them to renew business so you can be a business owner. That's the distinction. By doing this paying them to occupy space, you might still be an employee. They do the renewal sales work and you both make money. The renewals are the most important part of your business model. Absolutely. Not company bonuses, not life sales, not annuity sales. P&C renewals. If you're a multiline insurance agency owner, that's the part of your business that is the most important financially, the easiest to sell, clients are most likely to keep purchasing, and that provides the stability and the platform for then you to be able to hit your company goals and be able to have huge life sales.
This is why it's so important that people understand this. When people say, Wade, you know what? I have zero team members and I want to hire one, or I've got a half team member, I want to hire another one, or I've got one team member, I want to hire a half more or one more, and I'm scared, well, do you have the P&C renewals to do it? Here are some rules of thumb for you. You can always have as many commission-only, that is no base salary and no draw commission team members, as you can handle. These people sell only, they don't service, and you don't pay them a base because they don't handle any renewal sales. So complete this analogy. Again, going back to the car dealership, if you hired five people to work on the showroom floor and sell cars, you don't pay them a base. You pay them a high commission on the sales they make, but you don't pay them a base because they don't work in the service department. On the flip side, if somebody worked in the service department, they make their 10, 15, 20 an hour or 25 an hour, whatever it is.
And then separately, you might give them a couple little bonuses because they made an upsell or whatnot. But for the most part, most of their income would come from basically service work, and then it comes from service commission and service charges. So in that case, again, if a person's only selling, we're not paying them on base. And then you cannot afford an unlimited number of team members with base salaries. One team member can usually service about 500 or 600 homes or families. It depends how you word that. And this does vary a little bit depending on market and the nature of things. This person might or might not sell life, health, annuity, disability. But if you look at it this way, if I had these number of households, anywhere from zero to 3,300 households, basically zero to 600, I can have one salaried team member, 600 to 900, or to be precise, that's probably what I need, 900 to 1,200, I need two, 1,200 to 1,500, 2-3. So it gives me this idea of a range of what I would need. And commission only salespeople I can have as many as I like can find, and can handle.
And by can handle means these people still take up your time if they're commission only. So I want to make sure I can handle that time investment to develop them. As far as renewal dollars, a lot of these examples I created when it was easier to pay, let's say, about a $30,000 base salary, now it's a little higher. So you might actually change the math. Right now I'm saying for every $100,000 that you could have one salaried team member. You might say, You know what? In my market, that multipliers dollars because I've got to pay this and it's costing me more. So it's a slightly different bit of math for me. That all depends. And again, you can have as many commissionally salespeople as you like. But basically what we're doing here is we're setting up a situation where we're clear about what it is that you can either need, as far as this standpoint, from a work standpoint, you usually need at least these numbers of people. And then if you're in a higher premium area, maybe you're making a little bit more, but usually cost of living is more expensive as well, and you might have higher base salaries.
The action plan for you is to determine how many base salaries you should have for your agency based on your household count, that is your families, and the number of renewal dollars you have available to you. Now, of course, when I say how many base salaries, you might have four part-time people, which is actually two full-time people, let's say, using just a pure definition of part-time equaling 20 hours a week. You say, Okay, well, then I still need two total base salaries worth. I hope you find this helpful. This will help you get really clear about how you should be staffed and when you're ready to grow. If you have any questions in this, always feel free to email me, message me, reach out to me. If you want to look at more content or listen to more content like this, you can follow the free podcast at automaticinsuranceagency. Com. And if you ever want to discuss your agency situation and have me help you by doing an agency performance review strategy session, I'll find out a little bit about your agency and then look at how we can help you create the plan for your agency to be as profitable as possible, grow as best as possible, or achieve whatever other goals you're looking to achieve, I'll help you create the plan, and then we'll decide which, if any, parts you do by yourself and which, if any, parts you need my help with.
Again, hope you find this helpful. As always, I look forward to helping you impact more people and make more money in less time doing what you do best so you can fully enjoy your family, your friends, your freedom in your life. Let me know whatever I can do to help you. Thanks.
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