Hey, everybody.
Drew McLellan here from Agency Management Institute this week, coming to you
from a little cottage outside Orlando, Florida.
So this week in the Facebook group that is filled with about 2000 agency
owners that we run and maintain, there was a conversation,
an agency owner said, Hey, I want to create a bonus program
for one of our account executives who is charged with upselling the clients.
And there was lots of advice, lots of frankly, bad advice
about how to structure that bonus program.
So a couple of thoughts. 1.
It is very dangerous
to create bonus programs for individuals inside your organization.
And it's dangerous because a little bit here
and a little bit there and a little bit here
and a little bit there all of a sudden, eat away at the profit that you make.
2. Most of you have not really cemented
the fact with your account service people that it's actually their job.
It's what they get paid to do is to grow their book of business.
So an AE should be able to grow their book of business by 10% a year.
So whether it's a client or five clients, let's say they're managing on January
1st, a half a million dollars of AGI, that half a million dollars should grow
because they're doing their job to $550,000 of AGI by the end of the year.
So you certainly should not give them a bonus for simply doing their job.
But if you are going to create a bonus program for account service people
or for anybody in your organization, you really have to do the math.
So the bonus program that several people suggested
would have literally eaten through all of the profit
of whatever the agency grew or gained by this person's efforts.
So you can't give away 15 or 20% of the gross profit
or the AGI, because the reality is that those numbers are too big.
So if you are one of the best run agencies,
you're dropping 20% profit to the bottom line out of your AGI.
So again, remember, AGI is everything.
It's gross billings minus cost of goods.
AGI is what you have left to run the business.
You're going to spend it on people,
you're going to spend it on overhead, and then hopefully you going to have profit.
So if you're one of the best run agencies, it's 20% profit.
So if you're giving away 10% of the growth of AGI,
you're literally – if you're one of the best agencies
in the country or the world – you're giving away half of your profit.
So far better, if you insist on doing a bonus program tied to specific tasks
or roles, you're far better off to give a flat bonus, a flat dollar
amount bonus tied to a size of an accomplishment.
So for example, if in my example,
if they went from 500 to 550, no bonus paid.
But if they go from 550 to 600, so they bring another
$50,000 of AGI into the agency.
Remember, that's not all your money to spend.
You've got to pay salaries, you're going to pay overhead
and you're going to have a little bit left for profit.
So giving them a flat fee of $500 or $1,000 out of the profit is reasonable.
Anything more than that is you overpaying, overcompensating
and not actually enjoying the benefit of the increase in sales.
You want to actually make money when they help you make money,
so make sure you don't give it all away.
So if you're going to do an individualized bonus program,
sit down and really do the math to make sure that you,
like many agency owners, are not accidentally giving away the farm.
All right?
So do the numbers carefully if you're going to go that route.
I'll see you next week.
