How Long Should You Give a New Producer to Validate?

 Have you ever second guessed a new producer hire?

One of the biggest hiring problems for agencies is the process of evaluating a new producer and knowing how long it should take to determine if they will validate.

 

What is the average time and can that time be cut? 

Here is a quick guide on how you can tell how long you should give a producer to validate, what progress they should be making, and how a client of mine was able to improve their process for validation with our iWin system.

 

How long should you give a new producer to validate?

Validate simply means that the producer is paying for themselves now.  Here is a quick example.  If you are paying your producer a $50,000 annual salary and the renewing commission rate at your firm is 25%, when this producer hits $200,000 of renewable commission which at 25% produces $50,000 paid to the producer, they are validated. Many agency owners feel that 36 months is a fair time for a new producer to validate their salary.

 

Where should a producer be after 6 months, 12 months, 18 months down the road, and so on?

If you haven’t established those goals in writing, then a new producer will not know, and neither will you, if they are on track. Being on track is really important.

If not, you could easily get to the end of the 36-month period and be way behind schedule.  At that point, you’d drop the salary, and the producer would be living on what they have killed.  If a producer is too far behind, they will probably quit and you both just lost.

 

How agencies try to prevent this validation problem…

Many agencies have designed a system where they pay a guaranteed salary for year one plus the commission, then the salary reduces in year two by 1/3 but they keep getting their commission and in year three the salary reduces again by 1/3 and the beginning of year four they are completely on commission (an “eat what you kill” program).

A client of mine was able to reduce validation time…

A client of mine in Sacramento, California reduced their average validation time from 36 months to 22 months and increased their success rate to 70%.  That is very significant from many perspectives. When you can reduce validation time by 14 months on average, you have reduced the load on cash flow and that’s a pretty big deal.

But even better than that, you can get the next new producer going 14 months faster. This firm will get three producers validated in the time most agencies will get only two. That means they are getting more producers writing new business, growing the top line and value of the agency.

 

How did they do it?  Two things came into play…

  1. They radically improved their selection process. Out the door is the idea of “let’s give them a shot and see how they do.”  They run new candidates through the Evidence Based Hiring Process that is taught in our new producer hiring program. With that, they are much more efficient and effective at culling out those that can’t make it.  Only real producers get hired.
  2. They have committed to a sales culture development system where all producers are trained to sell in a way that focuses on beating the incumbent, not just getting a chance to quote.  Their sales training, sales meetings, goal setting, value-ads are all in sync with that concept…and new producers benefit by being in a sales-driven culture with on-going sales training. All of these elements are encompassed in our CRM System.

 

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