Is benchmarking important? Well, yes and no. Benchmarking isuseful for identifying possible weaknesses in an agency and forcomparing it with a group of other agencies. Using benchmarks forother purposes, however, can cause problems.

For example, many agencies use benchmarks to set strategy andconsider “best practices” benchmarks to be goals they should striveto surpass. However, if agency managers do not understand thestatistic to which they are comparing their agency's performance,they may set strategies that send them heading north when they needto go south.

Currently, a popular benchmark for agencies is revenue perperson. This benchmark, though, has limited value because it isdirectly related to agency size-the larger the agency, the largerthe per-person revenue. For large agencies, increased revenue oftendoes not translate into higher profit margins. I analyzed allpublicly traded brokers to learn if a relationship exists betweenrevenues per person and profit margins, and found no correlation. Idon't see the value of steering an agency toward arevenue-per-person benchmark if doing so doesn't improveprofits.

Another fallacy that trips up agency managers using benchmarksto guide strategy is the assumption that all agencies fit into thesame mold. For example, I have worked with many agency managerswho, after checking a benchmark, push their CSRs to service moreaccounts. If benchmarks indicate that the average CSR can service$250,000 in commissions, the managers push their CSRs to do justthat and hound, and sometimes fire, them if they complain or failto keep up. Often, however, the commission goal is unrealistic,especially if an agency's commission per account is considerablyless than the industry average. Each account, regardless of itssize, requires a minimum amount of work, so a CSR working manysmall accounts will not have time to service the additionalaccounts necessary to generate an average service level.

Some CSRs may not be able to service an average book (as definedby a benchmark) because of the quality of the producers' work. Ifproducers provide inadequate or incorrect information or writeillegibly, a CSR's workload increases significantly-but revenuedoes not. CSR productivity also is strained when producers quoteany and all accounts, regardless of the odds that they'll actuallywrite them. Many agencies could eliminate at least one CSR positionif their producers quoted more selectively (which in turn wouldincrease profit margins and revenue per person). If your producers'hit ratios are less than 25%, you can save money by institutingcorrective action to discourage them from quoting business theyhave no chance of writing.

Another, more insidious, effect of benchmarking is that itspawns imitation. An agency that tries to attain the same resultsas its competitors is more likely to mimic their actions, andthat's not a good strategy.

For example, when only a few agencies used broker-of-recordletters to write new accounts, they might have possessed a truecompetitive advantage (provided they completely and immediatelyre-applied and re-underwrote each risk upon receiving the BOR).However, many more agencies now use the same strategy, so anyinherent competitive advantage is lost. In fact, companies haveminimized the advantages of BOR letters by no longer givingagencies credit for using them to increase volume.

Trying to copy the best of the best can backfire because thestrategies used by the fastest-growing agencies are different from,and often diametrically opposed to, those strategies followed byagencies achieving the highest profit margins. This fact is high-lighted by the difference between agencies that grow organicallyand those that grow by acquisitions. Accounting methods can easilydistort the picture, so a direct comparison can lead to inaccurateconclusions.

Using benchmarks to plot strategy can promote complacency. Oftenan agency that outperforms the benchmark will conclude that nofurther improvement is required or even feasible. Such is notalways the case. If an agency outperforms the industry average, butfurther improvement is possible, why stop there?

Instead of using benchmarks to lay strategy, continually set newgoals so your agency is constantly improving. After all, whatdifference does it make whether an agency is performing a lot or alittle below an average of other agencies? In either case, the keyis to identify problems and work to overcome them. If the agency isout-performing some average, the agency still needs a strategy tomaintain that high performance.

Every agency is different. When designing your strategy, focuson the qualities that make your agency unique and build on them.Don't be lead astray by some number based on the performance of ahandful of your peers!!