P R A D

Generational Capacity and Its Influence on Agency Health

Bottom 25%

Top 25%

Age Distribution of Production Force

41%

29%

28%

28%

53.6

45.1

WAPA

22%

22%

56.6

49.7

WASA

18%

12%

1% - 2%

8% - 9%

Organic Growth

Up to Age 35

Age 36-45

Age 46-55

Over Age 55

7%

15%

Sales Velocity

Bottom 25% (Example 1) Top 25% (Example 2)

1

5

Leaders under Age 46

Source: Reagan Value Index

The key difference in these two firms is simply Generational Capacity. Examining the distribution of producers across age bands shows a balanced firm versus an unbalanced one. The balance achieved by the healthier firm has led to significant gains in Sales Velocity, organic growth, shareholder value creation and future leadership development.

NUPP

Another helpful metric to gauge an agency’s investment in producer hiring is Net Unvalidated Producer Payroll (NUPP). NUPP is a measure of an agency’s investment in developing producers. Expressed as a percentage of net revenues, NUPP is the difference between what an agency pays its developing producers in direct payroll versus what the producers would earn under the agency’s normal commission schedule. Generally speaking, a NUPP of 1.5 – 2.5% of net revenue represents a healthy level of producer hiring. For example, a developing producer with a $60K book of business would be paid only $18K if the agency’s 30% new/renewal commission applied ($60K x 30%). If the developing producer is actually paid a $45K salary, then $27K of the payroll is unvalidated ($45K minus $18K). This $27K represents the agency’s investment in the producer. A producer becomes a validated producer when the producer’s payroll is completely validated by his or her efforts as a producer. Using our example, our $45K producer would become a validated producer at the point his or her book reached $150K ($150K times 30% = $45K). Each developing producer’s “investment” is summed together. This total is then divided into the agency’s net revenues to determine NUPP.

Effective NUPP

While NUPP is a good measure of an agency’s investment in producer hiring, it does not measure the firm’s effectiveness in its hiring practices. To that end, the Effective NUPP calculation was

15 Producer Recruiting & Development Study