Record insurance agent hiring and the cost of a sales callArticle added by Ernest Falkner III on March 26, 2012
Ranked: #40 (1,268 pts)
Some companies will attempt to train new agents in a classroom environment and then turn them out to the field on their own to sink or swim. With this approach, the result is often multiple (excessive) selling calls to complete a transaction.
If you are a salesperson, do you know the cost of a typical sales call in terms of real dollars and cents? If you are a manager, do your salespeople know?
I suspect that if salespeople in all industries realized the real cost of making a sales call, they might be more critical about how they spend their time and who they spend it with. I mean, it just doesn’t make sense to make a sales call that costs, say, $400 to
sell a product or service that costs half as much does it?
Yet, that’s the kind of thing that’s going on day after day. In fact, a lot of salespeople are making $400 calls and not selling a thing.
It’s fairly easy to figure out what a typical sales call costs you if you keep reasonable sales records.
As a sequel to the article How will new agents be trained?, let's drill down in just this one area that could prove costly if not carefully considered.
In the agent development phase, some companies will attempt to train new agents in a classroom environment and then turn them out to the field on their own to sink or swim. With this approach, the result is often multiple (excessive) selling calls to complete a transaction. Some may conclude that the new hire does not carry the same price tag per call as an experienced agent, but considering every expense to get an unproven agent (new hire) to the point of profitable selling, their toll may actually even be higher per call.
When we search this issue, the averages can vary widely. But, for our purposes and more specific to an experienced agent within the insurance industry, it has been stated that 3.5 selling calls to close one sale could be an acceptable average ratio.
Now, if we consider how many of the other large, agency-driven companies get new hires to validation levels, it generally requires mentor/experienced agent partnering, or a sales manager. In that typical selling arrangement, they will make calls together.
If we do the math on that teamwork, it can prove even higher — it requires adding the total expense of both agents while calling on
prospects that are often less qualified/financially capable than the norm — often friends and family of the agent.
Now the math: Let's say the cost per call is $250 (single/inexperienced agent) and $400 (team of experienced and inexperienced agents). Let's also assume that the closing ratio is four to one for the inexperienced agent working alone, and three to one for the team. then apply the numbers to reality.
Using the inexperienced/experienced team, three selling calls at $400/call equals $1,200 of expense. Let's borrow from averages again and assume that the average first year premium in this market is $1,200/year (or $100/month). Looks like a break even, but no, the commission generally averages 50 percent in the first year. So, the net is $600 (to be carved up between the team).
To break even in this example, we need to move the bar up to $200/month, and to be profitable, even higher.
If we run the numbers out in this drive to hire thousands of new agents over the next decade, will the real commission numbers support this initiative? Will the business stay on the books? Can the market afford/support that much demand for new premium?
These companies may explain (or avoid) how they will get past these selling numbers and ratios, but here are some additional expense, contingency and development land mines going forward to make this even more challenging and unpredictable:
All said, at this point in the cycle of this industry, it will be interesting to see each company's specific plan while boasting of the largest hiring spree in their history.
- Company inflation related expenses
- E&O costs and legal liabilities
- Potential fiduciary designation of agents
- Increased educational and licensing requirements
- Government intervention and new regulations
- Potential taxation of cash values
- Adjustments of commission
- Industry and company grades from rating agencies
- Cost of gas/transportation/all other expenses
- A depressed market's ability to pay new premiums
Yes, in this era, agents will have a world of new digital tools to aid in introductions, qualification and production, but the application of these assets that will lead the new agent to success needs to be believable and clear.
Again, the objective here is not negativity, but profitability, and the big picture issue and question here is industry quality versus quantity.
Not only new agent prospects, but the existing agents — especially in captive companies — should be asking the critical questions as to how record volume hiring will result in profitability within their own company (trust but verify).
As always, you decide.
Disclaimer: Figures are for illustrative purposes only. These figures/ratios are estimates based on internet/industry research. These projections represent no claims or guarantees.
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