Just because you understand the total cost of risk doesn’t mean that your clients and prospects do. There are several things you need to do
Understanding Fee for Service
One of the things that I talk about that people get excited to listen to me describe is how I like to work for a service fee instead of a commission. Today, I’m going to talk to you about that exact concept and how it can shift you from a product salesperson to a problem solver.
What is fee for service?
I talk all over the country about the things that we do at Florida Risk Partners and the things that I have done throughout my career. One of the number one topics people love to hear me talk about is why I believe a fee-based service model for a producer is the best model that there is. A lot of people don’t realize that, in your state, you may be able to charge a fee instead of taking commissions. I know that in some states, you can put service fees on top of policies to get your compensation. Take that and throw it out the window. That’s not what we’re talking about here. I’m talking about accounts that are paying $50,000 to $100,000 in commissions right now. They like to be on a service fee. Many times, when I offer that option to them, it’s the first time they’ve ever heard it. Their agents never made them aware of the fact that they could do that.
Charge like an attorney!
Part of the rub with agents is we want to get treated like professionals. We want to get treated like the attorney, or the accountant, or other providers that our clients are using. We feel like we get crapped on for whatever the reason. Here’s a fun fact. Attorneys and accountants don’t make commission. They charge a fee. Whether it be an hourly rate, or an annual retainer, or whatever that is, they charge a fee. Why don’t we? Well, in my case, I do.
Build your fee structure backwards
Many times, I like to look at an account and see how much work it’s going to take and then build in the compensation from the backend. If the account has some hair on it, and I’m going to have to work for a little less this year to go ahead and make more in the long run, I’ll drop that fee a little bit below what the commission level would be to show them that I’m in the game and try and help them out. If I have an account that’s on $50,000 in fee now, on $700,000 in premium, which would be roughly $70,000 in commission, if you’re on 10% for worker’s comp, but the mods are 1.5. What happens to my commission when that mod goes to a 1.0 or lower? It drops. Just like you shouldn’t get rewarded for doing a lousy job and letting mods go high, you shouldn’t get punished for doing a good job and letting mods go low.
Set yourself up for future earnings
What do you do? You establish your service fee in a way that people can pay less than they’re paying in commissions now, but you preserve your earnings and your ability to get a raise on that fee in the long run. That $50,000 might be $20,000 less right now, but in a couple of years, it may be $20,000 more than what the commissions would be.
Put some of your fee at risk
Another thing you can do with a fee, and this is honestly one of my all-time favorites; you could put some of it at risk. Give your clients and prospects and option. Go in and give them an A or a B. Option A, give me a service fee. Option B gives me a lower service fee, and if I achieve predetermined metrics, I get a bonus of X.
I did this in real-time in an account that I represent in North Carolina several years ago when I first engaged with them. They were paying an excessive amount of commissions. It was ridiculous how much they were paying. It was all because they had a high-value property schedule. There wasn’t going to be a ton of lifting on the risk management side that warranted what they were paying. When I met with them, I gave them the dual option. I said, “Listen, here’s the deal. We can give this service platform to you for a flat fee of $87,500 a year, or we will do the same thing for you for $75,000 a year. For every $100,000 we reduce your total out of pocket loss costs, we get a $10,000 bonus, and I’ll cap it at $25,000 in bonus for a total of $100,000. So your worst-case scenario is, if you pay me $100,000, you will have saved at least a quarter of a million to do that.”
Now, this was an account that had an average of over $400,000 in out-of-pocket costs for the five years prior. They immediately jumped on the fee that put us at risk of earning it. Guess what happened? In year one, we did some risk managing. We got in there on the workers comp and the fleet, and we dropped it down to $36,000. We pegged it. The next year, we go into renewal, chief operating officer slides a check across the table said, “I owe you this. And my next question is, is the $87,500 option still available?” Well, A, I happily accepted his check, and B, the $87,500 was there because guess what? I didn’t have a way to peg my bonus anymore, so I was happy that I had that option to get more guaranteed.
Be creative in your compensation
Fees can be creative. There are all kinds of things that you can do. If you haven’t thought about this and you have questions, I encourage, I want you to reach out to me. I’m happy to talk to you about it. If you’re somebody who believes in your value proposition and you believe in the problems that you’re solving in the way that you address them, quit tying your compensation to a fricking product and make it about your value proposition. When you link your salary to a product, you’re a salesperson. When you tie it to your value proposition, you’re a trusted advisor. Cold-blooded killers aren’t salespeople. They’re trusted advisors and assassins in the middle market. If you can learn how to adjust your compensation to a fee-based model, you’re going to absolutely kill it commercial insurance.