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27. Paying Profitable Base Salaries in Your Insurance Agency

Make Each Team Member Profitable by Rewarding them for Retaining Your Renewal Book

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Quick Summary

  • Pay base salaries based on the amount of business each team member services / renews to create fair compensation, high employee retention rates, and long-term profitability.
  • Offer draws or advances against bonuses to attract talented individuals hesitant to work for commission-only. 
  • Evaluate each employee's profitability and their contribution to the agency's revenue.
  • Confirm that employees with base salaries generate enough renewals to make the agency & the owner a profit.
  • Paying a base salary to a P&C Rainmaker who only focuses on business acquisition (and does no service or retention work) can result in financial losses for the agency.

Full (Edited) Transcript


Hey, everybody. Hope you were doing awesome today. We are going to go deeper into our conversation about how to best and most profitably staff your agency. Much of why you decided to be an insurance agency owner probably has something to do with renewals of property and casualty business and being able to actually have a business. A lot of the times the work that is the property and casualty work, the auto insurance, the personal lines, the home insurance, it might not be that exciting. It might not be as fun as big commercial policies or big estate planning or life policies. And yet in that part of your business, that's where you're usually a business owner. That's where you're making money, even if you're not directly making things happen. That's where you're making money when you're out of the office, when you're on vacation. And so I want to remind you first of all, like a public service announcement, the most amazing part of your business model is the P&C renewal part. If Einstein were around and their insurance agencies, Huda said that it was the seventh wonder of the world, in my opinion, not even compound interest.

It's one of those things that's such a big deal. And so on one hand, it's great as agency owners, as you evolve and you do higher level things and bigger cases at the same time, like one of my clients says, the big cases are big bricks. It's not easy to say. The big cases are big bricks in a house, and they help build the house quickly. But without the smaller bricks, without the just multitude of personal lines, autos, and homes, you can find yourself very quickly in a situation where one policy, although it made you a lot of money on a commercial or a big life case, it loses you a lot. So on the flip side, the profitable-based salary conversation is all about making sure that the way you set up your business is going to allow you to make money off of each section of your book and each team member. And so in order to do this, we need to be clear about who's doing what and know what type of person we're dealing with. What I want to do is first just show you in a really simple way what it looks like when base salaries are out of balance.

I'll tell you, at the end of the day, you pay a base salary because the person is servicing a part of your P&C renewal book. If you have a person and they're not doing any P&C renewals, they're not servicing book that's staying on, you should not be paying them a base salary. Maybe you paid them a draw, but you pay them a base salary because they're taking care of business for you. Let's say you have a service-only person, we might call them a retention person, and that person is taking care of $150,000 of your P&C renewal book. These base salaries are a little dated, but I like to keep the math simple sometimes here too. Let's say you were paying them a 25,000 base and they cost another 25,000 of overhead, or you could word it differently. You could say, Wade, they're costing me a 35,000 base or a 40 base, and they cost me another 10,000 overhead, whatever it is, they're costing you 50,000. And so you are making 100,000 on that section of the book. You're making 67 % profit. That is out of this world. In fact, the only thing that's dangerous about that is you might be underpaying that person.

They might be working extra and they might eventually leave you if you were only paying them that much. Then let's say you have another team member and they are servicing 100,000 of P&C renewals. Let's say they're also costing you 50 as far as base benefits overhead. You're making off of that person's, just again, their P&C renewal part. They might be making some sales on multiline sales or new sales, but just the P&C service, you're making 50,000 on that as the agency owner. And so that's a 50 % profit. That's pretty good too. Now, the third person, you have an office manager type. You can call them this. I actually don't like the term office manager because it sometimes breeds contempt between the team members over who works for who and who supervises who. But let's say you call that person a retention team leader or an office manager, whatever you like, and that person, because they're doing other things for you, they're maybe also your executive assistant or they're doing some different things, they're servicing 50,000 of P&C renewals, and they're costing the agency 50,000. So you're making no money off of the renewal book, but perhaps that person is worthwhile to you, to the agency, because they're providing freedom for you, they're helping you coordinate other things.

There's other areas that we're not measuring here, let's say, first year production, monthly production, that they're helping out. But in essence, from a renewal standpoint, they're not making any money for the agency. Then we have the P&C Rainmaker. I'm going to be really specific about this definition because a lot of people mix up very often the P&C Rainmaker and the either service and multiline person or the service and salesperson. A P&C Rainmaker, I'm talking about somebody who is doing zero P&C renewals. They're not servicing part of the book. They don't have a section of the alphabet. They don't take service calls. They are just drumming up P&C business. Maybe they have centers of influence. Maybe they're going to networking meetings. Maybe they're doing marketing on social media, LinkedIn, whatever it might be, but they're doing zero service and retention work. Yet a lot of times what happens is the agent general will say, Well, the market rate for base salary is X amount. And again, I'm using 25 just to keep the math simple here. It's probably more these days. I made these slides a while ago, but I keep them simple because it keeps the math simple.

Let's say you're paying that 25 or 30 or 35 base, they're costing you 50 after all overhead, you're losing money on this person. And so maybe they're making up the money on their P&C acquisition sales. Maybe they're not. But we don't want to be paying that person a base on them. We're going to correct this shortly. So overall, the overall picture is not bad, but there's some problems here. The overall picture is good. We have 300,000 of P&C renewals. We're paying a third of that to team members through baseline benefits. We're paying a third of that in agency overhead, and you, the agency owner, are taking home a third of it. That's not bad. Years ago in some high premium areas, it might have been easier to take home even more than that. But that's a good solid take-home rate as the agency owner on your P&C book, knowing that you're also making money on your life and annuity sales, your health sales, your disability sales, your commercial sales, whatever it is that you're doing. But in essence, if you go person by person here, my most dangerous people are my two extremes. My P&C rainmaker is dangerous because they're costing me money, and I might just be simply throwing money out the door.

My service-only team member, that situation is the most dangerous. They're not dangerous. They're making me 67 % profit. But if they're doing more work, because again, they're servicing a larger book than my service and multiline person and my office manager person, they're worth more to the agency. And that's one of the first people that will get cherry-picked from me by some other agency owner. And this is something that you find different people have different understandings of base salaries. A lot of the times the captive agents I work with are used to painting everybody with the same brush with these base salaries as this example is shown here. Many of the independent agency owners I know and some of the, I'm just going to call it out here, the wiser captive agents, they'll pay that person, the service-only person, more because they know that person is the foundation of the renewals, their freedom, their ability to be gone out of the office for a month. That person's huge to the agency. This is, again, salaries out of balance. Here's what it looks like when they're in balance. Remember, I made, let's go back to the slide real quick, I made a third on this.

I want to keep, let's say, that profit ratio. But what I'm going to do is say, Well, hold on. If this person is taking care of 150,000, I could afford to pay this person 50,000 base, one-third. The overhead is not going to change because the chair, the equipment, the desk, the rent, that's not going to change. But the base salary, I'm going to pay them a third of what they're taking care of because, again, going back one, a third of this is going to base salary and benefits, which is a good ratio. What I'm doing is now is I'm saying, I'm fixing this. This was off. This person should be making 50 because they're doing more work. This second person gets a 33 base, and all of a sudden you see these numbers start to come more in line with what you could do today in most markets. Now, look at the difference between these two. The service person might be making this 50,000 base, and they're making for the agency that 50%. They're probably not doing a lot of proactive sales. That's fine. My service and multiline person has that 33 base. They should be selling proactively auto, home, life, health, disability, annuity, whatever it is you have to offer, commercial, farm and agriculture.

That person should be making more of their money off of bonuses. That's balanced. And again, it's just accurate. So both of them are making you a profit. The third person, my office manager is, or again, my personal executive assistant, again, as I've said, I don't like the term office manager. I like the term actually results automator, the person that helps coordinate things, or team leader at most. But anything that leads to hierarchical conversations about who supervises who can be difficult unless you have a really large agency and clearly do have hierarchical structures. But in this case, they're servicing 50,000 business, so their base salary is 16 and change. You might say, Wait, how would I pay for that person? Well, maybe they're part-time or maybe they're doing other things. But if I'm going to pay them more, I'm at least not going to factor it in from the P&C renewals. I'm going to give them other objectives where I say, Yes, your absolute base salary is this 16,000. But if you can help me do other things, if you can run the agency and I don't have to show up other than four days a week, let's say, if that's my goal, I'm going to give you an extra 500 bucks a month.

That's another 6,000 bucks. If you can do this other thing and make sure the team hit certain production results, I'll give you another 500 bucks a month. That's 1,000 more months in order. I can give you different criteria the same way my service and multiline salesperson or my service and P&C salesperson can have bonuses for sales production. The office manager type, the person that frees me up can get bonuses for getting results that liberate me. But from a base salary standpoint, I'm going to stay and check. Again, we look down here, each one of them under the % amount, base salary is 33%. Why? Because that's how the business works. It's just math. I'm not running from the math. I'm honoring the math. I'm not borrowing from Peter to pay Paul. I'm staying in alignment with what is mathematically true. My P&C Rainmaker does not get a base salary. Now, they might get a draw, they might get some advance, but they're not getting a base salary because they don't do P&C renewals. I'm making sure that overall I still have the same profit ratios, but for different people, I'm honoring the nature of their position.

The P&C Rainmaker, if I in any way am factoring in how I'm going to reward them, I might still need to pay them some either advance on bonuses or a draw because it is really hard to find somebody that's really talented that will work for pure commission-only, unless you have a real strong commission-only bonus plan with renewals, renewal compensation involved. In this case, I might decide that I'm going to pay this person, let's say, $500 a week as a draw or as an advance against their bonuses to make commission only and tell them, Look, after three months, you're going to be off of this draw or off of this advance, and you have to make the bonus amounts. But what I'm avoiding here is I'm avoiding the danger of me paying out every month $25,000 to somebody who's doing nothing. Now, I can't fully avoid the fact that maybe this person costs money to the agency if they literally are occupying space in the agency and I'm paying 100,000 for the location, the electricity, the rent, all those different things, I'd spread them evenly. Now, perhaps that person, depending on how your licensing rules work, maybe that person works from home.

So maybe you do have less overhead for that person. That's not a horrible idea. But overall, what I'm acknowledging is that the base salaries, again, this is not total compensation, just their base salaries are aligned with the financial reality. A base salary is a renewal sales bonus. I wouldn't use the word commission. In some states, the words... The word commissions implies trails and renewals even after they leave you or after they get fired. But at the end of the day, this is based on them getting the result of getting people to keep coming back and creating renewal income for the agency. This puts you in a safer place. It makes it easier for you to cash flow every single month. You're not having to worry about whether or not you're going to go over in a given month. It's really now up to the P&C Rainmaker to make sure that they can solicit business to pay their bills, just like it would be for a person who sells cars at a car dealership and does not work in the service department. There's no base salary. They've got to sell. Big sales commissions, big sales bonuses, but no base salary.

The office manager to make what they need to make, they need to earn their keep by helping me run the agency better, by helping free up my time, by being a great executive assistant that helps free up my time to sell other stuff. If this office manager/executive assistant type helps me go from writing, let's say, 50,000 of business in life, annuity, commercial, whatever is the big stuff you do, and because of their help, I write 150, well, then that would be part of the overall revenue picture I'd look at. I'd say, Well, hey, this person helped me jump 100,000. I want to make sure they get some of that. Similarly, if the serve and salesperson, the serves and multiline person here is making more income for the agency on the sales side, I'm going to give them bonuses there. There. So bonuses happen in addition to this. But for the base salaries, we're not going to go over. We're going to stay within our lines and stay within our lane. The action plan is just to confirm that everyone in your agency who has a base salary is servicing enough renewals to make you profit.

Again, I like the words, renewal sales better because it's more accurate to what they're actually doing. But you want to make sure each person's making your profit, regardless of where they are in the process, so that you know at every step of the way you're making money. I hope you find that helpful. If you have any questions on this, please let me know. If you'd like to schedule time to discuss your agency, feel free to message me. As always, I look forward to helping you impact more people and make more money and less time. Do what you do best so you can fully enjoy your family, your friends, your freedom, and your life. Thanks for listening.


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