The biggest question you have when considering switching from working as a captive agent to working as an independent agent is how much money can you make and how fast can you make it?
Just like your clients, you’re making the switch for the value of the decision. You’ve decided that you can make a lot of money for yourself rather than for insurance businesses. As a business owner, you stand to make more as long as you’re doing more.
As independent agents and insurance brokers, we act as intermediaries between our clients and the big bad insurance carriers. We don’t do it out of the kindness of our heart, though. We’re looking to turn a profit but we don’t do it with price gouging — we do it with versatility, options, and strategy.
All that’s well and good but how long can it take to turn a profit? Days, months, years? All that depends on several factors like your location, your book of business starting out, and what types of insurance coverage you have to sell.
Whether you’re selling life insurance, health insurance, or niche insurance like avalanche coverage, your job as an independent agent is all about maintaining long term relationships with clients and the insurance company of their choice. The more choices you have for them, the more likely you are to attract and retain clients.
So let’s take a look at some of the big points of profitability, the window you should expect to garner profits, and what to do if you’re not seeing the results you want. The more you know about your insurance agency’s expectations of profitability, the easier it will be on you making the switch.
What Profitability Means
Making money isn’t all there is to profitability. Profits are about two things relative to each other:
Revenue: This is how much your agency earns from its business writing policies, collecting premiums, and selling insurance products.
Expense: This is how much your agency spends to operate. This can include rent, staffing, marketing, and many more. Anything your agency pays for to keep the lights on and the clients coming in is an expense.
Simply put, your profit is your revenue minus your expenses. To increase your agency’s profits you should manage both your earning and your spending.
Now that we’ve covered what profits are, let’s take a look at what profitability actually means. To be profitable and increase your agency’s profitability is all about managing your efficiency and keeping the balance just right between revenue and expenses. Your agency’s profitability determines how much you make as an independent insurance agent.
What factors can impact your agency’s profitability? Let’s take a look at some impactful variables:
Whether you put a lot into your marketing budget or you spend money on a new location, your startup costs are going to impact your profitability and how fast you get there. Before you get to the business of selling insurance, you need to get up and running.
Rent, staffing, supplies, and the coffee you make in the morning all counts as an operating expense against your profitability. As independent insurance agents, our operating expenses come right out of our pocket instead of being paid by the insurance company like when you were a captive agent.
If you’re clamoring for attention in a crowded market, that’s going to affect your profitability. It means you’re spending a lot more on marketing and sales to make your voice heard. In the insurance industry, setting yourself apart as an agency owner is what makes you profitable.
Once your expenses are under control and you’re earning consistent revenue, that’s when you start seeing profitability. Determining your business’s ideal profit margin is a huge part to maintaining consistency and determining when you have room to grow.
How Long Until My Agency is Profitable?
Starting out, you need to have manageable goals. Before you worry about profitability, strive for breaking even. This is when you’re no longer in the red, your debts are cleared or being paid off with your revenue, and you’re on your way to making a profit.
During your startup process, it’s imperative that you know when approximately your agency will break even. That will let you know when you really need to start panicking if you’re not clearing a profit or on the way by then.
Though there are several factors that can impact your profitability, by common small business metrics there’s a time frame when you can expect a profit. Most businesses don’t make any profit in their first year of operating. It could take anywhere from 18 to 24 months for your insurance sales to actually provide profit.
Don’t feel discouraged. Every small business owner has to clear this hurdle. Be patient, trust your instincts, and stick to the grind. Marketing is key to attracting new clients, expanding your book of business, and reaching profitability to keep it.
Tools to Get Started
nsurance is a profitable, marketable, and sustainable industry. As long as people worry and state insurance laws mandate it, there will be a market for insurance products.
That being said, there’s no guarantee that people will buy it from just any insurance agent. You’ll need a lot of capital and tools early on to set your agency up for success.
Let’s look at the bare minimum you need to set up shop:
From registration to generating a Tax ID Number, there’s a lot of red tape you need to get through to get started. You’ll need a corporation name to register with your state, a Tax ID Number for filing your business’s taxes, and register with your state insurance commissioner as a relevant business. You’ll need all of these forms and identification numbers to pay taxes, open any bank accounts, and hit the ground running.
This variable is completely dependent on how much you have, how much you want to raise, and how much you think you’ll need. For instance, if you’re starting your agency out of your garage, you’ll need a lot less than someone renting office space or a storefront. Regardless of how much startup funding you anticipate needing, you’ll need some capital to get you going.
As an insurance agent, you’re not exempt from needing insurance. You’ll know more than anyone, if you have these, you’ll need their corresponding insurance products. Workers’ compensation coverage for your staff, professional liability insurance for your business, commercial property insurance if you’re renting or owning a space outside your residence, and many more.
To reach goals, you have to clearly establish them from the beginning. A successful business plan is a huge part of a successful business. Whether looking to secure funding or solidifying relationships with carriers, a plan is the first step to taking yourself seriously and making sure others do, too. Your business plan can include business objectives, list of insurance products you’re offering or seeking, market analysis and strategy, financial projections, and more.
Having manageable expectations and goals is important when starting out. Remember that profitability may be a ways away, so include milestones for success that are outside breaking even and making a profit. An expanding book of business, successful lead generation, and building relationships with insurance carriers are indicators of success early in your agency’s development.
What Not To Do
As you’re not the first captive agent to strike out on your own, there are several that have tried and failed. Every failure, like success, is unique and contingent upon several factors.
However, there are a few mistakes that a lot of success stories avoid. Let’s take a look at some things to avoid.
Being Thrifty on the Wrong Things
There are some things you’ll need to spend money on. Just like you tell your clients, if you’re cheaping out in the short term, it may affect you in the long term. Agency management systems, customer relationship management systems, and marketing tools are pivotal to your new business and when you buy inexpensive products, it shows. Be sure, when shopping for these products, that they integrate well with each other and can manage sustainable growth. Constantly updating and replacing software and systems is time and cost intensive.
Your business, especially as it begins, is all about you. Your resources, your instincts, your strategy - as such, you should make sure all your time is spent on driving those initiatives forward. Several agents starting out focus on doing everything themselves to avoid hiring staff, but support staff is key to you being able to perform your job properly.
You’re not an IT technician, you are not a marketing expert, and you can answer a phone but is that how you want to spend your time? If you’re not spending time on insurance and think to yourself you need to hire more agents - consider how you’re spending your time and reorienting your efforts instead.
Figure Out Your Billing Mistakes Early
As you grow, your billing, payments, and invoicing mistakes will only become more glaring. Cash flow is just as important as profitability and making sure the trains run on time by getting all the bills paid is crucial to maintaining your business. Be sure your payments storage, tracking, and management systems are all clear and can grow with your business.
Doing Too Much
Marketing, sales, and strategy pushes can all seem appealing. Especially if we’re telling you you won’t turn a profit for a year or so - so why not burn through your capital trying to get as many leads as possible? Whether you’re trying to offer too many varieties of insurance at once or focusing on too many separate marketing initiatives, your business can suffer when you try to do too much.
See what your competitors are doing and how it works for them. Think about what you respond to as a consumer. Instead of worrying about all the social media platforms, focus on a few at a time to find out what really works for the clients you want. Invest time and effort into initiatives, determine early what makes them a success or failure, and pivot accordingly.
AI isn’t taking over, but it certainly does help a lot. Whether automating your payments, communications, or marketing blasts, automating can save you a lot of time and money. It can also remove a lot of margin of error and alleviate some bugs in the system. If you’re efficient starting out, you can only grow more so.
Profitability Isn’t Instant but Action Is
Starting your own insurance agency is not for the faint of heart. You knew that though. You’ve done your homework, compiled your research, and made spreadsheets until your eyes crossed.
You may not turn a profit in the first year, but you’re playing the long game. You’re switching from captive insurance selling to working for yourself and with all that work, risk, and capital will come its own reward. In time. For now, focus on getting through your agency’s infancy and getting to the breathing easy part of breaking even. Eventually, you’ll reach a profit margin you like (did we hear 7%?) and then have to focus on scalability and growth.
Until then, you need all the help you can get as a new independent insurance agent. Whether you’re looking for networking opportunities, profit-sharing, or mentorship, you can find all that and more at SIAA.
A membership organization like SIAA can help you learn more about what to do, where to start, and (just as importantly) what not to do. Trust on the guidance of other successful insurance agents and learn from their successes and mistakes.
You can expect even more insight, strategy, and expertise in our free ebook.