2 Implement good procedures. Well-written procedures that are enforced and followed by everyone in the agency will greatly improve efficiency and productivity. And the benefits don't stop there–good procedures that are followed will also increase profits, increase sales, improve quality, decrease E&O exposures, make training easier and improve moral. The rewards of good procedures make it well worth the effort.

3 Hire producers right. A bad producer may cost an agency $200,000, and often much more. APRS shows the average compensation of a new producer is $60,000. Benefits average 20 percent of compensation, or $12,000. My experience is that most producers are given at least 2 or 3 years to prove themselves. So at $72,000 annually, that is $144,000 to $216,000, not including overhead, training (good producer schools are $15,000 to $25,000) or soft costs. And what does the agency have to show for it? A lesson learned and plenty of frustration. Hiring a producer correctly costs a little more–maybe $250,000 all else being equal–but the end result is a large book of business generating $400,000 or more after 5 years. That is a great return on investment.

4 Reduce staff turnover. I've seen many measures suggesting that hiring a new staff person costs around 50 percent of the person's salary. If you are underpaying your staff and have high turnover, consider whether it is more profitable to pay 10 percent more or to hire new staff regularly. The money saved by increasing staff tenure can be a handsome addition to the bottom line, not to mention the likely gains in productivity and reduction in E&O exposures.

5 Pay for profits. A good compensation plan should only pay producers for making profitable sales. Producers should be paid only for accounts that meet specific requirements such as account size and account quality. Many agencies today are making a major mistake by only setting minimum account sizes. Larger accounts can be just as unprofitable as small accounts if they are of inadequate quality. Similarly, well-managed small accounts can be more profitable than large accounts.

Very few agencies are so efficient that they can afford to pay producers for accounts that generate less than $500 commission and still make a profit on that sale. Truthfully, the number is more likely $1,000 for most agencies. It is not that these accounts can not be profitable; they just are not profitable if a producer is paid for them. Make every account profitable by not paying producers on small accounts and pay only for quality accounts.

Another reality is that most commercial accounts that generate less than $100 in commissions are not profitable, even without paying a producer. The servicing cost is just too high. To learn your agency's absolute break-even commission, divide your total annual expenses excluding producer compensation by the total number of accounts. This is overly simplistic for agencies with multiple divisions and such, but the end result will give you a number close to your absolute break-even commission amount.

Pay profitable employees well, pay poor producers nothing, and the agency will be well rewarded. If the accounts below the agency's break-even amount are eliminated and producers are not paid for small accounts, most agencies will realize a sudden increase in profitability.

6 Hold producers accountable. This sounds simple in words, but it's tough in reality. When producers are held accountable, their average commission per account will increase, the cost of writing and servicing the account will be less, loss ratios will likely decrease, and the agency's E&O exposure will decline. I have worked with many agencies that have turned on the accountability switch, and the improved results are easy to see.

Another aspect of accountability is not continuing to employ unprofitable producers. Using industry averages, a producer typically must generate at least $250,000 in commission for the agency to make any money. Producers with books less than this amount are most likely costing the agency more money than they generate. How many producers do you have in your agency with books that fall below this threshold?

In these tough times, we have to find ways to offset our losses. Combining these examples with an agency's strength, will create exceptional results.