WHAT IS your budget line item for "New Producer Expense"? Agencies have line items for charity, postage, autos and many other expenses. But few consider the cost of new producers. Any agency wishing to grow or perpetuate itself needs new producers. Without them, what is an agency's future?
If you don't have a line item for new producers, is it because you don't plan to hire any? Or are you planning to use your cash reserves to cover the cost (assuming the agency has cash reserves, which most don't)? New producers cost money, which has to come from somewhere!
New producers require a sizable commitment and investment. To see how much, consider the chart below, which shows the anticipated expenses for an agency that plans to hire new, inexperienced producers at regular intervals. (The chart also would apply to experienced hires, but the numbers would be different).
New producers are like proposals; not all are successful. So in addition to the sort of expenditures shown on the chart, I recommend budgeting for failures too. At an optimistic 50% failure rate (most agencies' failure rate is probably more like 75% to 90%) and assuming all failures are fired after two years (a big assumption, because many agencies wait three years or more), there is an additional net cost of $59,000 for every successful producer. Hiring a new producer is a very expensive undertaking.
Failures are especially costly, because the agency never makes that money back. Therefore, agencies should do everything possible to make sure their producers succeed. The following steps should help.
- One at a time: One mistake to avoid is training multiple producers simultaneously. No agency with less than $5 million in annual revenue should be training/developing multiple producers who are at the same stage of development. At best, such an agency may get by with having one first-year producer and another with three or four years of experience-if the agency takes all the steps below.
- Testing: Many new producers fail because they are not cut out for the job. According to the "New Producer Profile," published by The National Alliance Research Academy, 53% of new producers cite cold calling as the toughest aspect of their work. In other words, more than half of new producers are reluctant to carry out one of their most important tasks.
Management can assess a candidate's level of call reluctance through testing. With the knowledge gained, management can either hire people who don't have call reluctance or provide training to help those who need to overcome it. (See Behavioral Science Research Press, www.bsrpinc. com, for more information on call reluctance.)
- Training: Sales and technical training also increase the odds of success. The days of agencies training new producers on their own are long gone. Occasionally, an agency will succeed in the effort, but such agencies are the exception, not the rule. Give your new producer a fighting chance by providing proper training. You can choose from a number of producer training schools.
- Proactive management: Agency management often takes a reactive stance to producer development. In other words, agency managers respond to new producers' problems, questions and requests for assistance. That's fine, but if management interacts proactively with new producers every day, they'll become more successful faster. Set goals together, monitor results, discuss progress and role play. There are many other steps management can take to increase their involvement with new producers and boost their chances for success.
New-producer success is especially important for small agencies, because the cost of developing a new producer is fixed; it does not vary with agency size. In other words, the cost of developing a new producer, as a percentage of agency revenue, is much higher in small agencies than in large ones. Consequently, it is all the more important that small agencies succeed in the effort. An extra $5,000 for training might make the difference between failure and success.
Budgeting for new producers every year makes financial sense. If an agency does not actually spend the money, it can be placed in a capital account for future producer development, which will ease budgetary constraints later.
Budgeting for new producers also creates a proactive environment. A line item in a budget elicits action, prompting an agency to look for new producers and have the funds ready to hire them, rather than passively wait until good candidates come along and then try to figure out how to pay for them. A budget item increases the chance for things to go right, for luck to meet preparedness and create opportunity.
Postage stamps are not the lifeblood of an agency, but you budget for them. New producers are, so shouldn't you budget for them too?
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