P R A D

factors are the two primary drivers of organic growth, and they are directly under the control of the typical agent or broker.

Agents and brokers generate significantly different organic growth rates. Over the past several years, a broker in the 75 th percentile has grown organically approximately three times faster than a broker in the 25 th percentile. The differences between the very top and the very bottom are even greater. When we have examined these differences in organic growth rates, our analysis suggests that the primary differentiator is new business production. Retention rates are important, but new business production wins the day. An agency’s new business production can be measured and compared across the industry with a metric that we will refer to in this study as “Sales Velocity.” Expressed as a percentage, it is calculated by dividing this year’s total new business by the prior year’s total commissions and fees. For example, an agency that had $10 million in total commissions and fees in the prior year and that generates $1 million in new commissions and fees has a Sales Velocity of 10%. We – and others – have measured this statistic for years, but we now want to use it as an important tool in forecasting producer hiring.

Sales Velocity

Sales Velocity in the Reagan Value Index

This year’s written new business

Bottom 25%

7.3%

Last year’s total commissions and fees

Average

12.7%

Top 25%

19.6%

Source: Reagan Value Index

As can be seen in the graphic, there are huge differences in Sales Velocity between firms. We examined the Sales Velocity for the 30+ firms in the Reagan Value Index, a group of firms for which we have detailed production data. The bottom 25% of these firms generated average new business totaling just 7.3% of their prior year commissions. Since normal client attrition rates tend to range between 5% and 10%, those firms may not even be producing enough new revenue to replace what is being lost. On the other hand, growth is not a problem for the top 25%. With an average Sales Velocity level of 19.6%, these firms can experience client attrition of 10% (the high end of the typical retail agency range) and still grow at an organic growth rate of 9.6% (assuming flat market conditions). The relationship between Sales Velocity and organic growth is critically important to understand. Many firms have big-picture growth goals that are completely out of line with the reality of their Sales Velocity. But without a clear understanding of the relationship between organic growth, Sales Average: 12.7%

8 Producer Recruiting & Development Study