What is a Fair Commission Split?

[Lakeman]

I have been a producer in the P&C business for 11 years and I love the business. I've had some major obstacles to overcome but things have worked out. 4 years ago the agency where I worked sold out and merged with another group. My book continued growing to approx. $600k in revenue, unfortunately the agency that bought us only wanted our book. After 18 months I was forced to sign a new contract and within 2 weeks fired. My part of the commission split with that agency was 40% new and renewal. I had a CSR that handled all of my service work, a marketing person to quote all new business, all I had to do was produce, and I did.
Not too long after being "deported" by the big, corporate agency I was offered a position with a small family agency that is a great group with great markets, but not all the support I had grown accustom too. I handle all of my renewals, marketing, apps, and I also work out of my home office 4 days a week, one day at the main office 60 miles away. They cover health insurance for my family, pay my cell phone and car but my commission split is only 30% new and renewal. A little over a year ago I bought out one of the agents that was retiring (he owned 50% of his book) taking on a big financial burden and freeing the agency of the financial risk of losing the business. They kind of have me hooked now. The problem I have is that the book I purchased requires a great deal of service and renewal work. I think 40% commission is more in line considering they don't have near the overhead with me working out of the house, inconveniencing my family some afternoons and having to share 3 CSR's with other producer's. Please give me some advise. I haven't discussed this with the principal and don't really know how to approach it. Am I asking for too much? I work too hard and my family doesn't deserve to be punished financially because I got burned by a "Big Shop". All responses will be greatly appreciated. Thank You

 

[whatsa]

I am a firm believer in commission splits being discussed before signing a deal, not after the fact, which puts you in a very difficult position from a negotiating standpoint. What kind of non-compete do you have? How stable is the book? What was the commission split on the book you purchased? All those factors affect commission splits. If the split was higher on the book you purchased, then you probably have an argument for an increased share with the agency principals. Having said that, in my experience commission splits range from 90/10, all the way to 30/70 (with 70 pct going to the producer).

I would think the agency's reaction will vary depending on how service intensive the book is, how big the book is, and how hungry the agency is. Personally, I happen to consider 60/40 to be a fairly equitable split -- in my mind it's basically 50/50, except 10 pct more for the agency as a 'fee' for the cost incurred by them for your E&O, phone, etc.

Something to consider if re-negotiating would be to keep a baseline of 30 pct, but escalate your share all the way up to XX pct based on increased production. I once had a contract where any production over XX pct I received 70 pct of the brokerage for the first year, and 50 pct thereafter as long as the book remained within the negotiated threshold.

Trust this is helpful

 

[Josh]

I work too hard and my family doesn't deserve to be punished financially because I got burned by a "Big Shop". All responses will be greatly appreciated. Thank You

What you and/or your family deserve is largely irrelevant. I have a good friend that was diagnosed with stage IV colon cancer at the ripe old age of 23 and two years later I was a pallbearer at her funeral. The unfortunate reality is that the universe doesn't care what you deserve.

That's the end of the tough love, now let's get down to brass and tacks.

I have been a producer in the P&C business for 11 years and I love the business. I've had some major obstacles to overcome but things have worked out. 4 years ago the agency where I worked sold out and merged with another group. My book continued growing to approx. $600k in revenue, unfortunately the agency that bought us only wanted our book. After 18 months I was forced to sign a new contract and within 2 weeks fired. My part of the commission split with that agency was 40% new and renewal. I had a CSR that handled all of my service work, a marketing person to quote all new business, all I had to do was produce, and I did.

Knowing nothing else, it seems like you had a great deal and a good run of it. Not having to even quote your own business and giving you 40% of the action seems like a better deal than most agencies would go for. It sounds generous.

Not too long after being "deported" by the big, corporate agency I was offered a position with a small family agency that is a great group with great markets, but not all the support I had grown accustom too. I handle all of my renewals, marketing, apps, and I also work out of my home office 4 days a week, one day at the main office 60 miles away. They cover health insurance for my family, pay my cell phone and car but my commission split is only 30% new and renewal.

Sounds like another good deal. Phone, car, cell, and health insurance aren't cheap investments to make into an employee.

A little over a year ago I bought out one of the agents that was retiring (he owned 50% of his book) taking on a big financial burden and freeing the agency of the financial risk of losing the business. They kind of have me hooked now. The problem I have is that the book I purchased requires a great deal of service and renewal work. I think 40% commission is more in line considering they don't have near the overhead with me working out of the house, inconveniencing my family some afternoons and having to share 3 CSR's with other producer's. Please give me some advise. I haven't discussed this with the principal and don't really know how to approach it. Am I asking for too much?

I couldn't agree more about determining commission splits upfront. If they came back to you and said they wanted to pay you 20% you'd not want to go for it and claim they were changing the deal on you, so why would they not feel the same way about you wanting to earn a higher commission than what was already agreed to. You probably won't hurt your situation any by talking to them about it, but I wouldn't expect to get very far with it. You had a good run with the first agency you referenced and it sounds like you were able to make a healthy living without having to do anything other than find the clients, but that's a very uncommon situation with good reason.


I'm slightly curious, if you're so invested in your business, what's stopped you from opening your own shop?

 

[Bertolinoins]

What is your current annual revenue?

 

[Scottyj]

Anything below 60% to the producer on an "all commision" structure is not fair. If you have a base that is a different ball game. I might even say anything under 70% on all commission is not fair. my .02

 

[JackThomas]

Anything below 60% to the producer on an "all commision" structure is not fair. If you have a base that is a different ball game. I might even say anything under 70% on all commission is not fair. my .02

The mistake made by many agency owners (and those who listen to advice provided by those who aren't in the insurance business any longer, or who could not 'make it' in the insurance business.) is not understanding what your overall expense ratios are in your agency.

If your expense ratio in your agency is 60% and you pay anything higher than 40% means that you are losing money.

You can't make it up on volume if Commissions paid exceed expenses Incurred.

Sounds like you had a sweet deal until the owners figured out they were losing money on the deal.

If you are a good producer You will have no problems Obtaining your own appointments and getting back to where you were before.

Start your own agency!
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The mistake made by many agency owners (and those who listen to advice provided by those who aren't in the insurance business any longer, or who could not 'make it' in the insurance business.) is not understanding what your overall expense ratios are in your agency.

If your expense ratio in your agency is 60% and you pay anything higher than 40% means that you are losing money.

You can't make it up on volume if Commissions paid exceed expenses Incurred.

Sounds like you had a sweet deal until the owners figured out they were losing money on the deal.

If you are a good producer You will have no problems Obtaining your own appointments and getting back to where you were before.

Start your own agency!

Whoops did not mean to copy your post Scotty J, especially if you are active in the business...

 

[Scottyj]

No worries jack. I totally understand where you are coming from. While i am still young and only 2 years licensed this agency has been in my family over 21 years. We offer our agents 65% and the rest to the house. We have had no issues with this all commission pay model. I say personally from my schooling and seeing our financials A business can be managed on a budget, our producers get a space to work, a computer, cards and 1 to 2 service staff. No leads, no comparative rater ....simply hit the phones and quote.

You don't need a new ams every few years, you don't need to buy leads, you don't need a 2500 square foot office. All those luxuries just eat into your producers pay and honestly most producers given the choice of another 15 to 20% will take it over the option of you having a big office, or a shiny new ams...

Unfortunately many agency owners want the big office and have high expenses, therefore they offer less favorable contracts.

 

[Lakeman]

My annual book is generating $320,000 revenue after 2 years. During the two years I had to deal with a non-compete that pretty much prevented me from generating any business that I had spoken with in the past much less written in the past. I couldn't afford to fight it and my attorney, who is a close friend, advised me not to try.
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Josh
No problem on the tough love, I agree with all you said. I would say I've got it pretty good compared to people that are dealing with "Real" problems. I appreciate your response! I don't know why I didn't open my own agency, looking back now it should have been a consideration. I think I was so shocked and felt knocked down when all of that happened that it took a while before I even started thinking straight. I was concerned about paying bills and so on, so I accepted a position with a friend's family agency and needless to say, my negotiating tools weren't all in tack. I like your honesty and I am open to whatever advise you can give. Thanks

 

[headcoach]

I have done many of these arrangements and the split was always 70% to producer