The Price of Joining Agency Networks and Alliances - What’s fair?

If you’re partnered with, or have ever considered partnering with an agency network, alliance, aggregator or cluster, you have – no doubt – had to evaluate what it’s going to cost you and your agency. With over 100 agency networks and alliances across the country, it can be difficult to evaluate and determine which type of fee structure will be right for you. 

Agency networks can benefit your agency in a number of ways, such as providing risk placement assistance, product and sales training, free education, and more, in addition to their main draw – market and carrier access. However, in most cases, you’ll have to hand over some money to gain that access, which can be difficult if you’re just starting out, and funding is already tight. In order for that network or alliance to be in business, however, they have to make money too. The partnership must be mutually beneficial.

Networks and alliances make money in three ways – fees, bonuses, and commission splits. To determine which network has the best financial offering for you, you’ll need to weigh each alliance’s fee and compensation structure on those three things.

Bonuses and Contingency Sharing

Most agency networks and alliances are able to make money each year by earning special bonuses and contingencies through the combined premium of the agencies with whom they’re partnered. In the 2022 INA Study, 69% of agency networks and alliances said they shared up to 75% of their profits from these agreements with their member agencies. 

Look through your contract carefully to make sure you’ll have access to these exclusive types of benefits from the carriers, as this can make a significant impact on small to mid-size agencies who may not otherwise be able to earn such benefits. 

Fees

While most agents will automatically look at the commission split first, the very first thing you should consider is whether or not the membership charges any fees. Many alliances charge fees for access to their membership levels, which can include any combination of start-up (join fee), monthly, exit, or even all three. Before you ever write a policy or gain access to a carrier, you may have to pay anywhere from $5,000 to $20,000 just to get started.  

After that, similar to any franchise, you may have to pay a monthly marketing fee that could be fixed, or on a sliding scale depending on the size of your agency or book of business, which could ultimately end up hindering your revenue growth. If your fees go up as your income goes up, it can be a frustrating and never-ending cycle.

Ultimately, if you end up deciding the membership or partnership isn’t benefiting your agency, and decide to leave, you may have to pay a fee to break your contract as well. 

Commissions

One of the top consideration points that agencies evaluate, is the commission split they’ll have to pay. If you’re comparing two network contracts, and one has a commission split of 80/20, the other of 70/30, it may automatically seem like the first agency contract is the obvious choice since they’re taking less of your hard-earned commissions, right?

Not necessarily. While retaining 80% of your sales revenue certainly seems better than 70%, clauses like this often involve hidden costs. First consider the fees you’ll be paying on TOP of the commission, which will negate a portion of your profits. Second, you need to find out if there’s a cap on how much the network or alliance can take of your commissions in any given year. 

The 70/30 commission split might actually be the better deal, especially if it comes with a cap and no fees. Once you reach that cap level and start receiving 100% of your commissions, it is guaranteed that you’ll never pay more than a certain amount to your network partner in any given year, no matter how large your agency gets. This small clause can pay off in a big way once your agency has become successful. 

Imagine the following scenario:

As you can see, the cap pays off in the long run as your agency grows. So, in a network without a cap on commission splits, no matter how large and how successful you become, as you grow, you’re always paying more of your hard-earned income.

From an agency owner perspective, this is very important because I think with some of these other aggregators, you don't have that cap level. They're going to take a percentage of what you do in perpetuity and they're going to take it at that same percentage no matter how big your book gets. And that's to me what makes Smart Choice a very equitable and fair proposition and I've always said that whenever anyone's talked to me about Smart Choice. I've always told them that I thought it was a very fair business agreement. –Allan Miles

In addition, it’s important to note that some agency networks and alliances take a portion of your commissions on EVERYTHING you write, not just on the carriers you access through their network. This could cost you a lot, if you already have some direct contracts on your own and are forced to move the business under the network.

Tip: Carefully compare commission structures and fees together so you have a full understanding of the cost of doing business. A network that offers a commission cap is often the best choice for long-term earnings and revenue growth. Also look for a network or alliance with a non-exclusive contract which allows you to keep 100% of your commissions on your direct contracts.