Agents Underestimate Their Self-Worth

The accompanying table provides an estimate of the effective hourly billing rate for the average producer in the top 25 percent performing agencies in the three largest revenue categories of the "2002 Best Practices Study."

Using the $2.5 million to $5.0 million revenue category (the left-hand data column) as an example, heres how we arrived at our numbers:

First, we begin with the average commercial property-casualty producers book, which is $677,068 in annual commissions. To compare a producers book of business with the effective annual billings of a lawyer or CPA, we must deduct the cost of services that an agency typically includes at no additional cost that would be separately charged for in a bill-by-the-hour professional environment.

If our commercial p-c producers clients were billed for professional services in a similar fashion to that of law and accounting firms, we estimate the producers clients would be charged for the following services separately. (As a note, the hourly billing rates shown are simply our estimates based upon a review of market-based billing rates for comparable services.)

High-level technical support. Weve assumed that based on the size of the book shown, 75 percent of an account executives time (1,500 hours annually) would be billed out at $125 per hour.
Marketing/placement. Weve assumed 100 hours annually at $100 per hour.
Claims. Weve assumed 50 hours annually at $75 per hour.

If the costs of these services are added together, the total is $201,250 in annual hourly charges. These must then be deducted from the producers annual commissions to get the "Net Commissions Allocated to Producer," which represents effective annual billings.

Dividing this by the 1,096 hours the producer spends annually servicing clients provides us with the "Effective Hourly Billing Rate" (EHBR), which is $434.

For producers in the larger "Best Practices" categories, the rates were even higher, with the rate in the "Over $10 million" category the highest, at $615 per hour. This would be competitive with the hourly billing rate of a partner in a Wall Street law firm!

As a loose rule of thumb, if you are a producer, your hourly billing rate can be determined by dividing your total annual commissions by $1,000 and multiplying the result by 60 percent. (So a producer with a $1 million book has an effective hourly billing rate of roughly $600.)

So what is the point of all this?

Aside from the curiosity questions that immediately arise, such as am I really worth that much? (and, by the way, the answer is yes!), there are some interesting applications that follow.

Most importantly, do you habitually undervalue your time? What if you started out each morning with a conscious recognition that each hour of your day is worth several hundred dollars? Would you be more inclined to allocate your precious time to high-return activities?

In his book "Good To Great," Jim Collins notes that a common characteristic of great companies is that their people regularly develop "stop-doing" lists, in addition to their "to-do" lists. In light of your lofty billing rate, which of the following should be on your "stop-doing" list?

Filling out your own applications. (Can you imagine a law firm where the partners are required to do their own word processing?)
Practice-quoting for price-driven prospects who use you simply to keep their current agent honest.
Handling personal lines and small-commercial accounts with no real growth prospects.
Targeting prospects with revenue potential of less than that of your average account.
Any activity that could be done effectively by somebody else in your agency at a substantially lower hourly rate.

This billing rate concept exposes a quirky little paradox. Weve frequently heard–particularly from those in direct support roles–that many producers have a misguided sense of their own self-worth, and tend to overestimate their own value.

In our experience, we agree that they are misguided, but the irony is that we think their mistake is not that they value themselves too highly, but rather not highly enough.

Kevin Stipe is a senior vice president and principal of Reagan Consulting Inc., an Atlanta-based management consulting firm that works with insurance agents, brokers and companies, as well as financial institutions. For more information, go to www.reaganconsulting.com, or contact Mr. Stipe at 404-233-5545 or via e-mail at Kevin@reaganconsulting.com.

Reproduced from National Underwriter Edition, June 16, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.