Becoming a State Farm Agent

[xrac]

I am 7 years out, one of the first on this contract. I have a lot of debt. Be ready with a significant cash investment or lines of credit in order to make it work. If you start scratch you have to grow a large volume in order to get to the size you need to be once you get your perm contract and they are no longer providing additional money. I know several agents who didn't go into debt and they are not big enough. They are having to go 100% comm off of their book now and it isn't enough. They are quiting or shutting things down and trying to survive. The reason you go into debt is that you can't grow it fast enough just cold calling, door knocking, networking, etc. You need to be about 2000 cars to be able to make a go of it once they give you your permenant contract. You have five years to get there if you start scratch. That means you grown by 400 cars a year or about 34 cars a month. That is about 8 cars a week or basically one new household a day. Sometimes you can do that in the early stages just cold calling, door knocking. However, once lapse/can kicks in as your book gets bigger (say 15%) and service starts bleeding into your prospecting...it doesn't happen. Plus, you have to write a certain amount for them to even match you monthly. Everyone turns to lead sources and direct mail. Plus, you have to staff up to do all the quotes. This all takes money and lots of it.


Then, if an agent hits the numbers on the front end and gets to the 2000 cars by going into debt they have to jump the next hurdle State Farm has created. They have to deal with the semi-monthly variable comp. Once your lapse/can reaches your production numbers and your growth stalls out your pay goes from in the mid to high 10's to the mide to low 8's. For me that was $60,000 in commission.

Most new agents don't know anything about either of these two issues. They are being given $11,000 a month from State Farm plus commission on what they write. They don't start to see the writting on the wall until year 4 and 5. Then it is too late.

Oh, and they don't have the slightest clue on what is in store for them with the semi-monthly variable compensation. They think they are going to be running at 10.8% their entire career. Even though the company came out in a memo stating that the goal for the contract is 9.5% and they will manage to that. I am at 8.5%...

AZAA05, you sound smart and successful. Here are two questions for you: seven years later how much debt? would you do it if you were starting over and know what you know now?

 

[AZAA05]

That is a very tuff question. Right now I am unsure of the answer. Ask me again in three more years when I have the debt paid off and I might have some positive things to say.

The real problem the we State Farm agents run into by way of comparisons is in our own ranks. I have one agent 3 miles away making 12% auto and 15% fire. I have another one a mile further from me making 10% auto and 12% fire. These numbers are locked for them. I am making 8.5% on my contract (my rate goes from 8% - 11%). Most SF agents would tell you that our biggest competition is each other. I can't compete with the "older" agents in my area.

All in all though, I still make a very good living compared to the general population. I am in the top 5% of household incomes for the nation (my wife doesn't work). I can't complain and I am thankful to have a very secure job in a very unsecure economy.

On the question of debt: I have $89,000 of debt left. I have paid off a little over $60,000. My ability to pay off the debt has been hampered by my payout ratios going down. However, I should have it paid off in another 4 years tops. Timeline might sound something like this. You open your agency and spend like hell the first five years. Then it takes you the next five years to pay it out. After 10 years you start to feel some of the lifestyle benefits of your hard work. I admit, a 10 year runway is a long one. I am already in it neck deep and see the other side though. I am not going anywhere. Other SF agents experiences might be different than mine and could lead to different conclusions.

 

[KJ in Miami]

Great insight, thanks for sharing! What do you know about the Las Vegas market?

I am 7 years out, one of the first on this contract. I have a lot of debt. Be ready with a significant cash investment or lines of credit in order to make it work. If you start scratch you have to grow a large volume in order to get to the size you need to be once you get your perm contract and they are no longer providing additional money. I know several agents who didn't go into debt and they are not big enough. They are having to go 100% comm off of their book now and it isn't enough. They are quiting or shutting things down and trying to survive. The reason you go into debt is that you can't grow it fast enough just cold calling, door knocking, networking, etc. You need to be about 2000 cars to be able to make a go of it once they give you your permenant contract. You have five years to get there if you start scratch. That means you grown by 400 cars a year or about 34 cars a month. That is about 8 cars a week or basically one new household a day. Sometimes you can do that in the early stages just cold calling, door knocking. However, once lapse/can kicks in as your book gets bigger (say 15%) and service starts bleeding into your prospecting...it doesn't happen. Plus, you have to write a certain amount for them to even match you monthly. Everyone turns to lead sources and direct mail. Plus, you have to staff up to do all the quotes. This all takes money and lots of it.


Then, if an agent hits the numbers on the front end and gets to the 2000 cars by going into debt they have to jump the next hurdle State Farm has created. They have to deal with the semi-monthly variable comp. Once your lapse/can reaches your production numbers and your growth stalls out your pay goes from in the mid to high 10's to the mide to low 8's. For me that was $60,000 in commission.

Most new agents don't know anything about either of these two issues. They are being given $11,000 a month from State Farm plus commission on what they write. They don't start to see the writting on the wall until year 4 and 5. Then it is too late.

Oh, and they don't have the slightest clue on what is in store for them with the semi-monthly variable compensation. They think they are going to be running at 10.8% their entire career. Even though the company came out in a memo stating that the goal for the contract is 9.5% and they will manage to that. I am at 8.5%...

 

[IMO101]

I am very familiar with the SF process, with many close friends at various levels within the organization, including agents. Overall, it is a great company, I believe. However, I also believe the agent opportunity, at this point in time, is simply not worth it.

The initial training and start up phase is industry leading. They will pay you an exceptional salary with full benefits during the training phase, which is an intensive process, and is arguable some of the best training in the business. Not everyone makes it through that process, but there is no better way to get paid and learn the insurance business at the same time.

However, once that all comes to an end, when the training is over and you are signing the lease for your own office, that's when things change dramatically.

The commissions are so small, and the overhead is so high, that it is extremely hard to make a living, in the early years, and for many, even in the later years. It is also very hard to make it past the temporary contract phase, and if you don't, you have essentially worked extremely hard, gotten into huge debt most likely, and helped someone else to build their business. You will either be given another year to prove yourself, or be out of there at that point. Some agents even have to deal with additional one year extensions, before getting the permanent contract.

The other problem is that there are so many SF Agents everywhere, that for a new agent, their biggest competition, even in an ideal market dynamic, is other SF agents.

SF is apparently rolling out a new process, where clients can simply go to a website, and change agents anytime (which of course means the commissions go to the new agent). This opens up the potential for agents going after other agents business, or at the least making it very very easy for them to change over.

I know many top level SF Agents, who are on the books as top producers, and yet they are making about 50% less 4-5 years in the business with SF, than our top level agents are making 1-2 years in the business.

Also, they do not own their own book, which is a major drawback. When you leave, you may have a small annuity program from SF, but it is nothing like the renewals other agents build, and own, even after they retire.

The worst cast scenario is you help them build their book for several months, or several years, and leave in debt, having to pay bills back for many years after leaving the SF Agent position, and yet you do not receive the renewals from all of the policies you sold, to help pay back that debt. They should at least offset the debt incurred with the renewals you built, but they do not.

I am not negative about SF as a company, and also not negative about the agent opportunity for those who are already agents, but for those getting into it know, I would caution you to be very careful. If you are starting with nothing, and don't know much about the business, it may be a great way to learn the business, and if you can live on 40-60k or maybe even 70-80k a year for your first many years, and are willing to work 60 hours a week to make that, and you are convinced you will be a superstar with them, it may be for you. However if you want to make 100k plus within 4-5 years, and not have to work 60 hours a week, and be able to retire in 10 years and work no more and receive your renewals, I would suggest another path.

An agent on his own who works 40 hours per week with intensity, can build a book of business that will pay vested renewals of around 100k+ per year within 5-10 years, and can earn 100k+/year in the first few years and more each and every year, with very little risk, minimal overhead, etc.

I just wanted to share my perspective, take it with a grain of salt please, it is still a great opportunity for the right person.

 

[xrac]

I am very familiar with the SF process, with many close friends at various levels within the organization, including agents. Overall, it is a great company, I believe. However, I also believe the agent opportunity, at this point in time, is simply not worth it.

The initial training and start up phase is industry leading. They will pay you an exceptional salary with full benefits during the training phase, which is an intensive process, and is arguable some of the best training in the business. Not everyone makes it through that process, but there is no better way to get paid and learn the insurance business at the same time.

However, once that all comes to an end, when the training is over and you are signing the lease for your own office, that's when things change dramatically.

The commissions are so small, and the overhead is so high, that it is extremely hard to make a living, in the early years, and for many, even in the later years. It is also very hard to make it past the temporary contract phase, and if you don't, you have essentially worked extremely hard, gotten into huge debt most likely, and helped someone else to build their business. You will either be given another year to prove yourself, or be out of there at that point. Some agents even have to deal with additional one year extensions, before getting the permanent contract.

The other problem is that there are so many SF Agents everywhere, that for a new agent, their biggest competition, even in an ideal market dynamic, is other SF agents.

SF is apparently rolling out a new process, where clients can simply go to a website, and change agents anytime (which of course means the commissions go to the new agent). This opens up the potential for agents going after other agents business, or at the least making it very very easy for them to change over.

I know many top level SF Agents, who are on the books as top producers, and yet they are making about 50% less 4-5 years in the business with SF, than our top level agents are making 1-2 years in the business.

Also, they do not own their own book, which is a major drawback. When you leave, you may have a small annuity program from SF, but it is nothing like the renewals other agents build, and own, even after they retire.

The worst cast scenario is you help them build their book for several months, or several years, and leave in debt, having to pay bills back for many years after leaving the SF Agent position, and yet you do not receive the renewals from all of the policies you sold, to help pay back that debt. They should at least offset the debt incurred with the renewals you built, but they do not.

I am not negative about SF as a company, and also not negative about the agent opportunity for those who are already agents, but for those getting into it know, I would caution you to be very careful. If you are starting with nothing, and don't know much about the business, it may be a great way to learn the business, and if you can live on 40-60k or maybe even 70-80k a year for your first many years, and are willing to work 60 hours a week to make that, and you are convinced you will be a superstar with them, it may be for you. However if you want to make 100k plus within 4-5 years, and not have to work 60 hours a week, and be able to retire in 10 years and work no more and receive your renewals, I would suggest another path.

An agent on his own who works 40 hours per week with intensity, can build a book of business that will pay vested renewals of around 100k+ per year within 5-10 years, and can earn 100k+/year in the first few years and more each and every year, with very little risk, minimal overhead, etc.

I just wanted to share my perspective, take it with a grain of salt please, it is still a great opportunity for the right person.

Great post! I can't see why anyone would want to do SF unless you want to grab the training and bail.

 

[IMO101]

Great post! I can't see why anyone would want to do SF unless you want to grab the training and bail.

Thanks xrac. Agents definitely do take the training and bail from time to time. I know of a recent case where an agent went through the whole training process, with a strong salary, and excellent training, and when it came time to sign the 3 to 4 year office lease, he just couldn't do it, so he immediately quit.

It is a really big commitment, and is not for everyone. I would not suggest that anyone making 50k-120k per year in a stable job or self employment, give that up for the SF agent opportunity at this point in time. If you are making 30-40k, and are able to live on that for 5 years or so, you may have little to loose (except any savings you may have).

I am a loyal SF customer, and consider myself a friend of the company in many ways, but would never consider being an agent with them. My friends who are agents are very disgruntled with the company due to ongoing negative change. Many wish they were independent, but they are too far in, and there is no easy way out at that point.

I wish those of you considering SF the best, and please write back on the forum in a few years and let us know how things end up, if you decide to go for it. There is opportunity still, but it is a mere fraction of what it used to be.

 

[smins]

I was an agent with State Farm for almost 20 years. State Farm Agency has changed dramatically in the last 10 years. Agents are really more "employees" than independent contractors. I would advise anyone wanting to be an agent to go for the general agent. There is much more opportunity in terms of carriers. You can be the agent you want to be in terms of concentration on commercial or personal lines. And you do not have to become a 'financial advisor'. It's tough to be everything to everybody in this business. State Farm also does not pay well on the financial products and if thats what you want to do go for a position in one of the top brokers houses. State Farm is a good company to go with if you like the security of a big company but you will not make the big bucks like the agents in the old agency system. And part of that problems is the commission structure and there are just too many agents in one area!

 

[ham240]

I have read many of the posts here and have a question. What if you have a really good friend who has been a SF agent for many years and is verrrry successful who wants to retire and pass on the agency to you. Has said that he wants to carve out part of his book and pass it on to you. He owns the building and will give you all of those things as well. Do you run or do you jump in?

 

[IMO101]

That is a really good question, and a kind offer from your friend, but there are some underlying issues. First, the friend does not own his book of business, SF does, so he wouldn't have the ability to sell it, or to give it away. When he retires, since State Farm owns the client base, they divide it up based on their preferences. It would go to any combination of current SF agents in the area, and new agents who successfully make it through their testing and screening process. The retiring agent doesn't get to make this decision. If there is some very special old deal that he has, that no one else in the company seems to have, where he owns his book and can give it to anyone he chooses, by all means take it, but I am 99% sure that is not possible.

 

[xrac]

That is a really good question, and a kind offer from your friend, but there are some underlying issues. First, the friend does not own his book of business, SF does, so he wouldn't have the ability to sell it, or to give it away. When he retires, since State Farm owns the client base, they divide it up based on their preferences. It would go to any combination of current SF agents in the area, and new agents who successfully make it through their testing and screening process. The retiring agent doesn't get to make this decision. If there is some very special old deal that he has, that no one else in the company seems to have, where he owns his book and can give it to anyone he chooses, by all means take it, but I am 99% sure that is not possible.

It would be suprising if it worked out the way he says. Nethertheless you would be under the current contract that SF offers not the contract that he is under. Look at it hard and long before making a decision.