Becoming a State Farm Agent

[newagent2010]

Were is all this talk of filing bankruptcy coming from.

I want to take the advice as honest advice...but it just doesn't add up.

4 years ago when I decided to go into insurance I was told 80-90 percent want make it. Of the 10 to 20 that will make it they want make it past 3 years. I have been blessed and fortunate to not only make it but make a good living so far.

This doesn't mean there is not ups and downs.

The state farm opportunity I am ONLY considering would be the taking over a book of business the size of 1 million in premium.

Me doing the math I have to have proper capital "which I have"...so this is how I understand it so far.

Take over a 1 million dollar book...that generates 100k a year in revenue.

Right off the top 50k goes to employees (2 total)...another 25,000 goes to rent / phones...light bill...and the other 25 k goes toward marketing and leads.

This brings me to zero income for myself...which is were I start in my current job when I wake up everday.

So to me to have a book of 1 million to cross-sell and grow upon would be great.

I understand that average or best case scenario for an agent wil be about 20k in income there first year...hell that sounds great to me..because I am looking at the 5 year goal.

I understand your concern about 8% variable compensation...but take a look around at the bigger names in the industry beside SF and even they have certain performance goals / measures than can give you a haircut if you are not producing.

So I am not saying that you are correct/ or incorrect I just think saying the word bankruptcy is way exagerated..but maybe I am wrong.

I am a guy who has flipped realestate started a business and done other entreuprenuer things...so I think I understand risk and return pretty well.

With all of these companies you are going to have some risk and some return.

If you go independing you lose the brand name and marketing but get the return and vice versa.

So if you don't mind why do you feel this strongly....again in myexpierence the people who don't make it in this industry are the ones who are use to getting benefits and a paycheck.

 

[AgentZ]

Well you are not getting the $100,000 after default you are off default and you are getting lets say 8.5% so that's $85,000 and you have done well on financial services but you are in a market that has little or no growth in P&C and your Homeowners rates are 25% on average higher than most of your competition. I might be your best friend but when I can save $500 per year in this economy on my 2 cars and my house I will say I am sorry but I had to go with XYZ co. Oh then you borrowed $100,000 in the first 2 years, which you can believe what you want I have talked to many agents and the average of over 100 agents that I have talked to that were hired in 2004-2007 is just over $100 K so they are taking about a $1000 out of each one of your semi monthly comp checks. Well it's all direct deposit now. So your $100k is now more like $60,000. Sure you may have grown your book and you may not have dropped to 8.5% this year but have that one bad year and you'll be right there.

You also won't have 2 staff that first year you'll have at least 3 (again suggested) along with signing a 3-5 year lease that in many markets is $2000 per month. They will also suggest you buy the Putman furniture package which will cost you about $300-$350 per month for 5 years. They will also suggest every marketing system there is from PAVE leads to $500 per month yellow page ads. Sure you don't HAVE to do any of this, as they say it's all "SUGGESTED" just like the guy in my class that lived 30 minutes from the town he started as an agent & put his house up for sale. He wasn't going to move until he sold his house. Mgt. "Suggested" he move but he said he couldn't afford 2 house payments and rent on his office. He was on track to travel and 12 days before his TICA phase was over he was told he would not be getting his contract. He was just $1000 in life premium from traveling and was going to buy a policy for himself to make sure he did travel. Who knows he could have went ahead and bought it and maybe he would have been kept. I think the DAFC wanted to fire at least one TICA to show that she wasn't afraid to fire someone. It wasn't long after that She was promoted to an AFE.

Now people that have not been thru the TICA phase will tell you that they have business experience and they would not do a lot of these things to get in debt at all. Now remember default rate back then was 8.5% now it's 10% for the first two years. Also I have seen a lot more TICA's lately getting to month 11 and not getting their contracts. They have 3-5 year leases, a furniture package and a lot of debt the first year. What do you think happens to these people? The stories on the NASFA site are real life experiences. Now if you have a clue how selective this company is you'll realize they are hiring people that have been successful in their prior careers..What I am saying is they are not hiring idiots...Go be an agent and come back in year 4 and let's talk again....I bet you will say that you believe the stories on the NASFA site. Agents on the two prior contracts rarely ever left in years 3-5 and they are leaving now in years 3-5 why is that?

This is my last post here for a while I have said all I want to say. My last word is if you are considering this as a career choice go talk to 10-15 agents that were hired in 2004-2007 and ask them about agency . Good Luck to anyone that tries this as a career. I hope you do well and it doesn't end you up bankrupt or even worse.

 

[newagent2010]

AgentZ,

First THANK YOU for you time on this post. I only ask if you don't mind to answer a couple more questions because you seem very knowledgble on SF...I am guessing you are an agent?

Ok first question.

1) Why would an agent need to borry 100,000 dollars the first year or two?

2) Ok...I am trying to make sense of this. Lets say that my default rate is 8.5% or 85k a year in expenses you are saying that SF makes me keep 3 positions in the office at all times. The recruiter is telling me differently that is my discreations...so I am assuming somewhere between is the truth. Still I can' see any reason under the sun for needing to borrow 250k over 2 years.

3) I can go without money for a while...what I do NOT want to do is invest my 50k of capital into a business that will bankrupt someone. I have to be honest this sounds like exageration from anyone when I hear bankruptcy...I would think a company as large as sf would not be allowed to continue year after year to hire people and ruin them.

4) I agree with you on the expenses and leasing of building...but honestly that is the case with every insurance company that I have met with so far.

5) I have talked with most of the big name companies and they all give you a haircut if your numbers are not on track...so I see your point with the 8.5% compensation being changed but show me a company that is captive that isn't this way.I am not expirenced enough IMO to go independent..I think I need the brand and name recongnition with the field support?

6) Now lets say at year 2 my default rate goes to 8.5%...it still been 2 years at 10% prior and I should of wrote enough business to make up a good say extra 40k in revenue. Using the exell spread sheet that I have received from 2 other large companies NOT SF...even show worst case secenarios of sitting on your butt for 2 years of renewal income of about 35 to 40k at year 2. I don't plan to be below average or even average.

I appreciate your time and I am not trying to disprove you I am just trying to make sure we are on the same page.

I think a lot of people get into insurance not knowing the severe ups and downs...and those people (there is a lot of them) really scew the numbers.

To be honest so far my biggest concern with SF is them being way to corporate...and me not being able to go and come like I want to.

Please if you don't mind reply!

Thanks ....and also to add one last question...if not SF and Allstate then who?

 

[Aydin]

Why would an agent need to borry 100,000 dollars the first year or two?

You don't have to borry it, but you should bury it because in a few years you will be broke and need the money.

I was given a book almost twice the size of what you are are talking about ($1.8 million) and I did NOT make any money my first year. After eleven months, they took the book back and gave it to one of their own. FYI = I am doing fine as I set up an Independent Agency and am making a go of it. I make money and I come and go as I please.

My Field Development Agent (the person they put you with to train when you are an Intern) is the Top producer in his AFO and is in the process of declaring bankruptcy. The nearest Agent to where I live declared bankruptcy last year. They were both on the AA97 contract not the AA05.

Two other TICA Agents that I know personally did not receive their contract and both had to declare bankruptcy. It is real!

As for coming and going as you please, they don't care so I wouldn't worry about that. I would worry about how you are going to make any money with this deal.

What state are you in and how are the rates there? Good Luck!

 

[mybeloveds]

Interesting

 

[newagent2010]

I was given a book almost twice the size of what you are are talking about ($1.8 million) and I did NOT make any money my first year. After eleven months, they took the book back and gave it to one of their own. FYI = I am doing fine as I set up an Independent Agency and am making a go of it. I make money and I come and go as I please.
!

Can you break down how you didn't make money ?

Ok...with independent who do you suggest to talk with?

I have no information on independent agencies?

 

[Aydin]

$1,800,000 is about $180,000 in commissions. (Call it $200,000)

Three employees = $100,000

PAVe Leads = $15,000

Rent = $20,000

Advertising $25,000

Utility bills (gas, phone, juice, etc...) = $5,000

Car & Gas = $6,000

Furniture / Signs / Build out on building = $25,000

I probably made $30,000 but nobody gets a book like what I was given. That number includes the $18,000 they give you in the first month.

In my previous job, I made $85,000 with a car and no headaches. State Farm put me through hell! I am glad I didn't sign the contract. The Independent thing has been a blast so far.

As for advice on how to go Independent, I went with SIAA (Strategic Independent Agents Alliance) and they were able to get me some great appointments.

 

[newagent2010]

$1,800,000 is about $180,000 in commissions. (Call it $200,000)

Three employees = $100,000

PAVe Leads = $15,000

Rent = $20,000

Advertising $25,000

Utility bills (gas, phone, juice, etc...) = $5,000

Car & Gas = $6,000

Furniture / Signs / Build out on building = $25,000

I probably made $30,000 but nobody gets a book like what I was given. That number includes the $18,000 they give you in the first month.

In my previous job, I made $85,000 with a car and no headaches. State Farm put me through hell! I am glad I didn't sign the contract. The Independent thing has been a blast so far.

As for advice on how to go Independent, I went with SIAA (Strategic Independent Agents Alliance) and they were able to get me some great appointments.

Thanks....here is the numbers I am looking at.

1 million in premium

100k in renewals
first year comp based off of new business you write about 20k

So 120k in income first year...back out the following expenses.

Employees 2 total = 50,000 dollars
Rent 24,000 dollars a year round that up to say 30,000
Leads 12,000
advertising they pay for yellow page ad first year.
Billboards 6,000
Phone lines etc 4800 but lets figure 7,000 dollars annually
Car and expenses (doesn't matter I already have this and I dont get any money for it)

Total expenses 105,000

Net for the year is 15,000 dollars which is about right from what I can understand.

50,000 dollar capital investment in the bank helps with the timing of the above.

Also...I would like to think I don't have to do the billboard if I don't want to????

The above picture is the what I have been shown from ALL the big name companies....( i haven't looked at the independent side)

My understanding and from seeing several people in the industry the past 4 years is the same.

You do this for the income potential at year 5 not year 1-3.

And as far as getting a haircut on variable compensation...The other big name companies that are captive have the same thing in there contract.

So when you look at all I am saying above...then there is only 2 ways to look at this.

1) being captive is that hard and people don't like hard.

2) These big name capitive companies lie to everyone

3) or being independent is thee way to go...the problem I have with this is i hear it all the time when people mention these great independent companies and clients go who???

And don't want to switch because of brand recognition.

And also a couple of post back one guys said that price determines everything...I hate to break it to you but that is severly wrong.
I am in a market right now were we compete against state farm and we are cheaper on a lot of our products and out of all the big name companies out there we all agree that SF customers are very loyal even when you are saving them 500 dollars a year.


So what did I miss above???

I appreciate everyones input...I DONT want to make a bad career decision.

 

[defender]

Newagent2010:

Just wanted to clarify a few things you are missing from your post, if you don't mind:


1 million in premium


****a good start, but you'll exahaust 120% of the commisions off this to keep your doors open and complying with "compentencies" to get your contract.******

100k in renewals
First year comp based off of new business you write about 20k

****I assume you're thinking you'll grow? The average SF agent's lapse cancellation rate is about 18% nationwide on auto. Our uncompetitive rates and the recession are taking its toll. You have to look at it this way first: Annualized, you will loose $180,000 in premium by doing nothing (stay with me here). You will have to write $180,000 of new auto premium just to maintain the $1mil book you're looking at. However, your 18% lapse can is probably more like 22% when you factor the how other agents will raid the book an existing clients. the 4521 form is the SF agent's way of ripping you off. So, you will litterally have to write $220,000 in new auto premium just to maintain the $1mil book. That means if your average auto premium is $750, you'll have to write 300 raw new autos (because added vehicles are not here anymore as people are dropping at least one car due to the recession). Now that we are now back to $1mil after writing 300 cars, how many more will you have to write at 10% commission to be happy with your pay? Well, we know that to make $22,000 you'll have to write 300 more cars for a total of 600. Not likely given our competitive challenges, and even if you did, this number deters quality and will result in your being on some sort of "binding program."***** Oh, one more thing, don't even think about writing a homeowner's policy as most of the country is being priced out of the market to reduce our exposure. You have no control over this one.*****

So 120k in income first year...back out the following expenses.

Employees 2 total = 50,000 dollars

*****You are way off here. Remember, you'll probably enherit atleast one staff person that SF went in and gave a massive raise to keep them on board. To keep and maintain an employee they must be fully licensed, and you'll want someone experienced when you start. Our systems are extremely archaic, and it will take you sometime to learn to navigate them. This main staff person will cost you a minimum $35k base, then add in your SS match/employer match/unemployement taxes/bonuses you need to pay to keep them motivated, and if SF offered health insurance to keep them during your transition, add another $5k. One experience staff person will cost you $40k, and the other you can get by with $25k. However, your achieving the "compentencies" for your contract may require that 3rd person. If you don't have them, you may be deemed "uncoachable."********



Rent 24,000 dollars a year round that up to say 30,000

****This is about right if you include you're utilities, phones, office insurance, workers comp insurance, etc******

Leads 12,000

*****You need to write a minimum of 600 cars a year to get paid and make somthing for yourself, you'll need to tripple this lead cost. Your close ratio with aggregators are no better than 1 in 10 on the high side. Also remember, leads off internet come with a much higher lapse rate. Most of the agents in my area agree on about 50% lapse rate. So the math here is: 600 cars X 1.5 (50% lapse rate) means you'll need to write 800 /1.8 cars per household = 444 cars times 9 leads to get one - means you'll need about 3900 leads to achieve this X $8 average cost, well you do the math****

Advertising they pay for yellow page ad first year.
Billboards 6,000

*****Billboards are for rememberance and do nothing to generate sales. No one buys out of the phone book anymore. It is simply for reference. You have to use internet leads. This is of no benefit to you********

Phone lines etc 4800 but lets figure 7,000 dollars annually
Car and expenses (doesn't matter I already have this and I dont get any money for it) *****You right on here*****

Total expenses 105,000

******I've helped many new agents over my years and I'll bet my life your expenses will be more like:

Staff: $70,000
Office: $30,000
Leads: $30,000 (don't believe me? ask any auto presidents club)

I've got you at $130k here in expenses. And we haven't even got all the other nickle and dime stuff that will make you tap into your line of credit they set you up with after the $18000 start money is exhausted. You'll be taping into this in month 4. Here's the reality kid:

You need at least a $1.5 million book so you don't have to worry about keeping your office open. You'll spend at least 2 hours a day on training and administration, don't underestimate this. This will help you achieving "scale" in your "disposable" office costs. You then have a real shot at growing $1mil over the next 10 years. The AA05 contract is designed for you to work 80 hours a week earning no more than any of your managers (which is about $90k).

It will take you 10 years to get here, but it might be worth it. I've been doing this a long time (and yes was tricked into the AA05 contract) and I've taken the time so you have a chance to write a "honest" business plan.

You need to wipe the "euhoria" of this deal out of your mind and understand its realities. Its an o.k. deal, not a great one. But if you can't make $40k a year flipping houses, I guess this may be a better route for you. I wish you only the best!

 

[defender]

Newagent10: you're way off. You need a $1.5 mil book to keep your doors open. You need 4000 internet leads to write 800 cars which you'll need to get paid every year.

Don't forget to factor a lapse cancellation rate of 18% when you start, figure out what you have to do to stay even. You'll need at least one experienced staff, and if you're playing their "compentancy" game, you'll need 3 of them. So, put your payrollat $65k when you factor withholding and employer matches, and benfits if SF did this to you behind your back.

I've been doint this a long time, and if you want to make $85k in 10 years, you need to grow this book to $2.5 mil (it will take you ten years if you're lucky). This means 800 cars a year based on what you are telling me.

DON'T FORGET LAPSE CANCELLATION, HOARDING BY OTHER AGENTS, AND OUR OVERALL UNCOMPETITIVE RATES WE HAVE NATIONWIDE.