If you own an insurance agency or want to set up your own shop in the future, one of the decisions you must make is what kind of insurance sales compensation structure you want to offer. Will you and your sales professionals share equally in commissions earned on all products sold? Will producers be rewarded only on business they write on their own? Will compensation be commission only? Or will you offer a salary + commission program?
There’s no definitive “right way” to structure your agency’s compensation program. Different types of compensation and incentive programs work to motivate your sales reps in diverse ways.
The Choice Is Yours
If your agency is earning full commission on every sale, no matter who writes the business, it’s up to you to determine how you might share commissions with others. Here are a few options you might consider:
-You might choose a Percentage of Sales Revenue Structure, which can also be known as Revenue Commission Structure. In this scenario, the sales rep earns a percentage of revenue for each piece of sold business. If reps earn 10% commission on a $100,000 sale, they would be paid $10,000. Or, if your agency earns 10% on sold business, you might reward the broker 80% of the 10% earned, with the 20% balance going toward agency costs, such as rent, utilities, etc.
-As an alternative, you could choose a Gross Margin Commission Structure. Under this scenario, if you had a $50,000 deal paying 10% commission ($5,000), and writing the business cost your agency $1,000, the broker would be paid a set percentage of the $4,000 balance (10% of $50,000 = $5,000 – $1,000 = $4,000).
-With a Tiered Commission Structure, a broker might be rewarded on the total book of business brought in during a specified timeframe. For example, 5% commission could be offered on the first $100,000 of business, 7.5% on the next $250,000 of business, and 8% on greater sales. This type of structure can be especially effective for more established sales teams. If the broker wrote $500,000 of business, the total commission paid would be $28,250 ($5,000 + $11,250 + $12,000).
-A Draw Against Commission Structure offers reps a guaranteed income plus the potential for a greater payout depending on total sales. If the guaranteed draw is $500, the rep can be assured of a $500 check on each pay day. However, if they sell more and the agency earns, for example, $2,000 on written business, the rep will earn more (based on whatever percentage split is agreed upon beforehand).
-A more complicated Multiplier Commission Structure is a fifth option. It offers your sales staff a base plus a percentage bonus based up to the agreed-upon quota. For example. 5% plus 2% on the first $100,000, 5% plus 4% on the second $100,000, and 5% plus 6% on the third $100,000. In total, your rep would earn a combined $27,000 on $300,000 in sales ($7,000 + $9,000 + $11,000 = $27,000) or a different total if your agency is taking a cut of the total comp earned.
Compensation can be agreed upon for a specified term (e.g., six months or a year), or it can be ongoing for as long as the business stays in force.
Indeed.com published an article in 2022 that includes several more commission options, including Straight Commission, Territory Volume Commission, and others.
Some argue a commission-only program is the only way to go to motivate sales. It can often attract super-aggressive sales professionals – who may or may not fit with your agency’s marketing philosophy.
In contrast, a base-only compensation program that offers an hourly rate or flat monthly salary may attract less aggressive sales professionals. That could prevent your agency from achieving high target sales goals. (Sales reps with a guaranteed income are less dependent on actual sales because they will be paid either way.) A program offering a base + commission works well in many situations, because it offers a greater incentive for sales.
To receive carrier commissions, each of your reps must be licensed in the state where the sale takes place and have a current license on the effective date of coverage. If your agency is not named as the broker of record for the employer, the producer must be named. Agents and brokers must also be in good standing with a current carrier appointment on the date the commission is paid.
Mix and Match, Track Results
There’s no fixed rule that says you must have the same commission for all of your sales team. You might find one structure works well for one group of reps, and another structure works better for others. If you’re considering a comp change, talk it over with your staff. Track your results and determine what structure works best, what will help you achieve the greatest sales results, and what most benefits your agency and reps.