Is benchmarking important? Well, yes and no. Benchmarking is useful for identifying possible weaknesses in an agency and for comparing it with a group of other agencies. Using benchmarks for other purposes, however, can cause problems.
For example, many agencies use benchmarks to set strategy and consider “best practices” benchmarks to be goals they should strive to surpass. However, if agency managers do not understand the statistic to which they are comparing their agency's performance, they may set strategies that send them heading north when they need to go south.
Currently, a popular benchmark for agencies is revenue per person. This benchmark, though, has limited value because it is directly related to agency size-the larger the agency, the larger the per-person revenue. For large agencies, increased revenue often does not translate into higher profit margins. I analyzed all publicly traded brokers to learn if a relationship exists between revenues per person and profit margins, and found no correlation. I don't see the value of steering an agency toward a revenue-per-person benchmark if doing so doesn't improve profits.
Another fallacy that trips up agency managers using benchmarks to guide strategy is the assumption that all agencies fit into the same mold. For example, I have worked with many agency managers who, after checking a benchmark, push their CSRs to service more accounts. If benchmarks indicate that the average CSR can service $250,000 in commissions, the managers push their CSRs to do just that and hound, and sometimes fire, them if they complain or fail to keep up. Often, however, the commission goal is unrealistic, especially if an agency's commission per account is considerably less than the industry average. Each account, regardless of its size, requires a minimum amount of work, so a CSR working many small accounts will not have time to service the additional accounts necessary to generate an average service level.
Some CSRs may not be able to service an average book (as defined by a benchmark) because of the quality of the producers' work. If producers provide inadequate or incorrect information or write illegibly, a CSR's workload increases significantly-but revenue does not. CSR productivity also is strained when producers quote any and all accounts, regardless of the odds that they'll actually write them. Many agencies could eliminate at least one CSR position if their producers quoted more selectively (which in turn would increase profit margins and revenue per person). If your producers' hit ratios are less than 25%, you can save money by instituting corrective action to discourage them from quoting business they have no chance of writing.
Another, more insidious, effect of benchmarking is that it spawns imitation. An agency that tries to attain the same results as its competitors is more likely to mimic their actions, and that's not a good strategy.
For example, when only a few agencies used broker-of-record letters to write new accounts, they might have possessed a true competitive advantage (provided they completely and immediately re-applied and re-underwrote each risk upon receiving the BOR). However, many more agencies now use the same strategy, so any inherent competitive advantage is lost. In fact, companies have minimized the advantages of BOR letters by no longer giving agencies credit for using them to increase volume.
Trying to copy the best of the best can backfire because the strategies used by the fastest-growing agencies are different from, and often diametrically opposed to, those strategies followed by agencies achieving the highest profit margins. This fact is high- lighted by the difference between agencies that grow organically and those that grow by acquisitions. Accounting methods can easily distort the picture, so a direct comparison can lead to inaccurate conclusions.
Using benchmarks to plot strategy can promote complacency. Often an agency that outperforms the benchmark will conclude that no further improvement is required or even feasible. Such is not always the case. If an agency outperforms the industry average, but further improvement is possible, why stop there?
Instead of using benchmarks to lay strategy, continually set new goals so your agency is constantly improving. After all, what difference does it make whether an agency is performing a lot or a little below an average of other agencies? In either case, the key is to identify problems and work to overcome them. If the agency is out-performing some average, the agency still needs a strategy to maintain that high performance.
Every agency is different. When designing your strategy, focus on the qualities that make your agency unique and build on them. Don't be lead astray by some number based on the performance of a handful of your peers!!
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