goldthroat
Expert
Do you prefer to get advanced commissions or take them as earned? Do most carriers offer a choice?
As Earned Commissions Vs. Advanced
- Thread starter goldthroat
- Start date
- 26,794
I prefer as earned. Mostly new contracts are at 0 -25%. advance. I think most companies give you choices.
- 26,794
I am more with thall.
I think if an agent can dial back the advance 10-25 points every quarter or six months. He will be at a point that he is not chasing that advance. Maybe keep one company at 75%. But the goal should be level income.
Just my 2 cents.
I think if an agent can dial back the advance 10-25 points every quarter or six months. He will be at a point that he is not chasing that advance. Maybe keep one company at 75%. But the goal should be level income.
Just my 2 cents.
- 15,319
Quite telling on how successful our boy Jim might be. He needs advances to pay for leads and offices. Sounds like his "team" isn't selling too much insurance.
Wonder what would happen if Jim had a few chargebacks.
By the way, he was first licensed 3 years ago so we can understand why he needs advances.
Is this the kind of guy with whom you want to contract?
Rick
- 14,808
This is more of a financial question. As-earned will aways be the logical choice if you have the financial ability.
Outside of having a spouse capable of paying the household bills on top of marketing costs, it's pretty easy math.
If you're net profit per client is $500 and you can write 3 deals a week, here's the math:
$500 X 3 = $1,500 per week X 4 weeks = $6,000/mo. Divide that by 12 months and you're earning $500 per month.
Month 1: $500
Month 2: $1,000
Month 3: $1,500
Month 4: $2,000
Month 5: $2,500
Month 6: $3,000
Month 7: 3,500
Month 8: 4,000
...Month 12: $6,000
So if you need at least $3,000 per month and don't have enough cash reserves to last 6 months then you have to take advances.
The issue with advances is it's indeed a loan and this is a high turnover business. If you get a small business loan for $50,000 to open up a pastry shop it doesn't matter if you're out of business after 6 months - you still owe the $50K.
Many agents get into this business, take advances, write some business then say "meh, ain't for me." Problem is no one's persistency is 100% and as some of those deals come off the books you're going to get a bill in the mail.
Outside of having a spouse capable of paying the household bills on top of marketing costs, it's pretty easy math.
If you're net profit per client is $500 and you can write 3 deals a week, here's the math:
$500 X 3 = $1,500 per week X 4 weeks = $6,000/mo. Divide that by 12 months and you're earning $500 per month.
Month 1: $500
Month 2: $1,000
Month 3: $1,500
Month 4: $2,000
Month 5: $2,500
Month 6: $3,000
Month 7: 3,500
Month 8: 4,000
...Month 12: $6,000
So if you need at least $3,000 per month and don't have enough cash reserves to last 6 months then you have to take advances.
The issue with advances is it's indeed a loan and this is a high turnover business. If you get a small business loan for $50,000 to open up a pastry shop it doesn't matter if you're out of business after 6 months - you still owe the $50K.
Many agents get into this business, take advances, write some business then say "meh, ain't for me." Problem is no one's persistency is 100% and as some of those deals come off the books you're going to get a bill in the mail.
Last edited:
- 1,311
The missing ingredient to this discussion is which line of business you're referring to when you talk about the Advanced vs. As Earned debate.
In my opinion and experience:
Major Medical - very high turnover rate
Final Expense - 12-25% turnover rate
Medicare Supplements - 0-3% turnover
I feel much better taking advances on Med Supps to reinvest into marketing efforts than I would with Major Medical, with its proclivity for turnovers. Sure, the commission is much higher with MM but not for much longer.
With the Medicare Supplements, it just takes good follow-up and these clients actually multiply. They refer their friends, family members, church members, etc. when they find a good deal and a good agent. In that line, I think the advances are fine.
As for final expense sales, all you have of significance is the first-year commission to work with. Whereas with the Med Supps you're going to see that same, first-year commission over and over again.
If you're just doing final expense sales, the minute you pause on your treadmill of commissions --> more lead mailers --> commissions, you not only fall off the treadmill, but it falls on top of you and crushes with chargebacks.
Most agents do not set aside 15% of their gross income to cover for chargebacks that will come in the final expense world.
Heck, most agents don't even budget for their next lead drop with their final expense commissions and report that they're dying for leads and broke at some point in their business because of this lack of planning.
I got off of running on the treadmill when I started adding Medicare Supplements to my business and it sure has stabilized the income. The referrals are a truly refreshing, too, as they never came this easily from the final expense folks. Running final expense leads is always a great cash infusion, but only if balanced with a stable line, too, like Med Supps.
All of this to say, that As Earned commissions come in years two through six anyway with the Med Supps and that is very nice. So, with much higher persistency as a line of business, and five (or six) more years at the same, first-year commission rate, it's fine in my mind to take that first year advance with Med Supps to reinvest. It still compounds in year two, three, four, five, and six.
The danger is living off of final expense-only income without very good management of that income for chargebacks and future lead orders. I hear from agents almost daily that write or call to say that they're dead broke as a result of the treadmill imprint on their head from their final expense business.
In my opinion and experience:
Major Medical - very high turnover rate
Final Expense - 12-25% turnover rate
Medicare Supplements - 0-3% turnover
I feel much better taking advances on Med Supps to reinvest into marketing efforts than I would with Major Medical, with its proclivity for turnovers. Sure, the commission is much higher with MM but not for much longer.
With the Medicare Supplements, it just takes good follow-up and these clients actually multiply. They refer their friends, family members, church members, etc. when they find a good deal and a good agent. In that line, I think the advances are fine.
As for final expense sales, all you have of significance is the first-year commission to work with. Whereas with the Med Supps you're going to see that same, first-year commission over and over again.
If you're just doing final expense sales, the minute you pause on your treadmill of commissions --> more lead mailers --> commissions, you not only fall off the treadmill, but it falls on top of you and crushes with chargebacks.
Most agents do not set aside 15% of their gross income to cover for chargebacks that will come in the final expense world.
Heck, most agents don't even budget for their next lead drop with their final expense commissions and report that they're dying for leads and broke at some point in their business because of this lack of planning.
I got off of running on the treadmill when I started adding Medicare Supplements to my business and it sure has stabilized the income. The referrals are a truly refreshing, too, as they never came this easily from the final expense folks. Running final expense leads is always a great cash infusion, but only if balanced with a stable line, too, like Med Supps.
All of this to say, that As Earned commissions come in years two through six anyway with the Med Supps and that is very nice. So, with much higher persistency as a line of business, and five (or six) more years at the same, first-year commission rate, it's fine in my mind to take that first year advance with Med Supps to reinvest. It still compounds in year two, three, four, five, and six.
The danger is living off of final expense-only income without very good management of that income for chargebacks and future lead orders. I hear from agents almost daily that write or call to say that they're dead broke as a result of the treadmill imprint on their head from their final expense business.
Do you prefer to get advanced commissions or take them as earned? Do most carriers offer a choice?
as earned....
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