Last week there was a story in the news of a rare nickel that was found in a closet stored away for 40 years. The nickel was recently sold for over 3 million dollars. The owner thought it was a fake and when she passed away her siblings decided to have it examined and it was determined to be real. One leaves a lot of money on the table if they do not know the value of what they have or have to offer.
In speaking with brokers, one of the biggest issues they have is determining what to charge a client for their services. There are many schools of thought, from charging standard commission fees to a flat amount based on number of employees. However, for a tightly run business, a process should be formed to determine acceptable profitability levels and to help create a story to sell it – this is step 1 of a successful fee-for-service strategy.
Each client is different depending on service levels and expectations. Analyzing the profitability of each account in your book of business can help you:
- Re-evaluate and quantify relationships
- Identify your most and least profitable clients
- Adjust service models to ensure acceptable margins
- Power conversations with current clients as you transition to a fee-for-service model
How do you evaluate client profitability?
To assist brokers in this endeavor, we have created a Client Cost Calculator. Brokers can simply fill in the boxes on areas like revenue and fixed costs. For specific accounts, the broker inputs the various costs associated with servicing that account – firms with an agency management system should have no trouble capturing factors such as number of meetings, calls, entertainment, etc. The calculator will then determine the dollars needed for each account.
- Here’s where you use the calculator output to craft your story – tell prospects and clients that you take service seriously, and you do an annual account review to measure all the services you’re providing. This helps set up an opportunity to introduce fees for those who haven’t had that conversation yet.
Another interesting aspect to the calculator is it can clearly illustrate to the broker which accounts are and are not profitable – i.e., which accounts should be moved out of their book to make room for more profitable clients. This in itself is a valuable exercise every producer should conduct with their book.
In addition, there are plenty of resources within Broker Briefcase to help you make the transition to a fee-based revenue model, from menu of services to consulting agreements (plus all the valuable services you can charge a fee for, from Employee Handbooks to the HCR Pay or Play Calculator to Benefits Statements).
You may not have a valuable nickel stored away in your closet, but without this type of process, you are leaving a mountain of nickels on the table. I think it’s best to let your competitors do that.
How is your agency using fee-for-service?
Are you already moving toward a fee-based compensation model? What strategies are working for your agency? I’d love to hear your comments below!
Dave, you are right on. Having spent 33+years at a large brokerage firm it was all about time/profit/services/cost. It was a tedious weekly task sometimes daily task. I might add that we reviewed accounts twice a year with the most important review done in Sept for budgeting purposes. having been here 8+months I do find agencies reluctant to reach out and offer services for a fee. Because of my many years and numerous relationships we have formed a team of “retired-one man shps with massive experience as our “back room” paid on an hourly basis when/where needed. It is working to our benefit and the producers are now thinking of fee/project work.