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I'm finally transitioning from a LOA to an independent broker for 2019 and I'm trying to figure out what to do regarding advances vs. "as earned" commissions.
First of all I want to understand the math correctly. Reading thru the contracts it seems like advances are treated as a loan with a particular interest rate. Let's give it some numbers: if I sell a medsupp for $100/mo. at a 20% commission, that would be $20/mo. as earned, or $240 for the year. If that carrier advanced for 12 months at a rate of 1% per month, how much would I get? Do I use the present value formula to calculate it? If I plug =PV(1%,12,-20) into Excel it gives me $225.10.
Next, how is the loan paid back? Is the advance on a policy's commissions paid back only by commissions due on that policy, or do renewal commissions go toward paying down any loan balance? I'm not sure how to ask this clearly. Let's say using the numbers above, I write one medsupp each month for a year. After 12 months, the first policy's advance is paid off, with the other 11 still outstanding. In month 13, do I keep the $20 renewal from the first policy, or does it go toward paying down my balance?
It seems like GPM and the Omaha companies are 0% for up to 12 months. I would imagine most of the rest of the medsupp companies will charge something. I would also imagine PDPs and MAPDs pay FYC around the effective date, but maybe some pay monthly commissions instead. I'm just not sure since my agency controlled my commission cash flow up to this point.
Just trying to figure out my marketing budget for the year so any input is appreciated.
First of all I want to understand the math correctly. Reading thru the contracts it seems like advances are treated as a loan with a particular interest rate. Let's give it some numbers: if I sell a medsupp for $100/mo. at a 20% commission, that would be $20/mo. as earned, or $240 for the year. If that carrier advanced for 12 months at a rate of 1% per month, how much would I get? Do I use the present value formula to calculate it? If I plug =PV(1%,12,-20) into Excel it gives me $225.10.
Next, how is the loan paid back? Is the advance on a policy's commissions paid back only by commissions due on that policy, or do renewal commissions go toward paying down any loan balance? I'm not sure how to ask this clearly. Let's say using the numbers above, I write one medsupp each month for a year. After 12 months, the first policy's advance is paid off, with the other 11 still outstanding. In month 13, do I keep the $20 renewal from the first policy, or does it go toward paying down my balance?
It seems like GPM and the Omaha companies are 0% for up to 12 months. I would imagine most of the rest of the medsupp companies will charge something. I would also imagine PDPs and MAPDs pay FYC around the effective date, but maybe some pay monthly commissions instead. I'm just not sure since my agency controlled my commission cash flow up to this point.
Just trying to figure out my marketing budget for the year so any input is appreciated.