In our Tales from the Sales Team series, we’ll cover actual concerns and questions from real salespeople about their paycheck and sales commission.
“What’s a fair commission split?”
– Seth, an insurance producer
Having worked in property and casualty insurance for the last decade or so, Seth has a good deal of experience under his belt. For the first time in several years, he’s found himself considering a new position with a different, smaller agency. That means Seth now has to negotiate for a new commission split.
Insurance agencies need to consider a fair commission split for producers.
In previous roles, Seth earned 35% on new business but also shared commission with support people at the large agency, including customer support representatives and account executives who generated leads. The position on the table offers less support and would require Seth to seek out his own leads and own customer relationships.
As Seth determines the right split, his potential employer needs to consider a fair compensation plan that will make sense for their bottom line but also provide a reasonable incentive to a new employee. The business needs to consider goals and objectives. We’ve identified a few of those below.
Goals and Objectives:
- New Business vs. Renewals: What’s more important to the agency as a whole? Generally new business gets more emphasis but how much more important is that new business compared to maintaining customers. It’s important to deliver a commission plan that emphasizes the two types of sales in a way that represents their respective importance. Perhaps a producer earns 45% on new business and 25% on renewals if that falls in line with how each sale generates revenue for the agency.
- Customer Relationships: Will a producer need to own customer relationships after a new sale is made? If so, how much time will a producer need to spend cultivating that relationship? When a producer needs to invest time into tasks that don’t directly generate revenue, such as customer relationships, commissions on renewals should recognize that and sufficiently incentivize that behavior as well.
- Lead Acquisition: How much time will a producer need to spend on generating leads? If leads are generally easy to come by, producers may not require additional incentives to perform that task. However if those leads require a little more strategy and attention, commissions on new business should reflect that.
- Opportunity: How much opportunity will there be for a producer selling policies in your territory or sector? If prospects are plenty, perhaps a producer won’t require additional motivation to tackle opportunity but if it may take some work to uncover the scope of possibility, that may also need a bit of representation in a commission plan.
- Revenue: It may seem obvious but it’s important to know how much revenue an agency earns through every policy sold and how any split can impact business moving forward.
- Salary: If the agency plans to offer a base salary along with commissions, that provides some wiggle room on commission splits. However, if compensation is entirely composed of commissions, an employer must provide an appealing incentive to keep producers motivated.
- Other Expenses: Make sure you can keep the lights on. High commissions splits might be great but if you can’t pay the bills, no one is going to win. So be realistic with how much the agency can afford compared to how much a good producer wants to earn.
Once an agency has determined the time and energy a producer needs to dedicate to each task, it will have a better handle on how to dole out a commission split on a policy. First, make sure to be prepared for a negotiation. Any good, experienced producer comes with an expectation to be compensated for hard work. Knowing the most you can offer will help you manage that negotiation.
After that initial negotiation, don’t be afraid to revisit the topic down the line. Keep an open line of communication on this topic with your producers to ensure they’re still incentivized and motivated to keep selling policies.
Once you’ve etched out the details, come see us and we’ll show you how to automate the entire process. Get more information or schedule a free demo and we’ll walk you through how our commission software can simplify commissions for your whole agency.