Personnel Budget Ratio

How much of a bite should compensation take out of an agency?

In order for most agencies to have satisfactory profitability, total personnel budgets should be kept in the 60s as a percentage of regular commissions, not including contingent commissions, according to Brian Burke, chairman of B.H. Burke & Co. Inc., based in Westbrook, Conn.

“So if you have an agency with $1 million of revenue the total personnel budget should be around the $650,000 range, or 65 percent. If you get up into the 70s you are going to struggle with profitability. If you get down into the 50s you are probably going to be very profitable,” Burke says.

That means the cash portion of an agency’s total personnel budget – not benefits – needs to be in the 50s, Burke adds.

Every agency is different, but usually the office and service staff portion of the personnel budget should be kept in the 30 percent range of that 50, he says.

“The way we evaluate an agency’s profitability and performance is by looking at what is the salary in relation to the amount of commissions handled?

“In a large account world, you can have an account executive making eight to 10 times their pay,” Burke says. “That works well from an expense ratio stance. So if you have someone making $80,000 a year but they are handling $700,000 of income that can work fine for the agency even though that may sound like a lot of money in the old world. Whereas in a small account world someone working really hard is going to have a hard time handling $100,000 to $150,000 of income. …That’s the reason why you can’t be paying producers on small accounts because it’s already a profit drain on the agency.”