Thread: Business Plan Financials and the Break Even Analysis

Hello All,

I am going out on my own... taking that big step... and starting my own Life Insurance Company.

I have had other businesses before and understand the importance of a plan. The development of the plan is running smoothly. I have a vision and goals but one area I am hitting road blocks with are the Financials... Primarily the Break Even.

Now many of you are probably thinking that this is the easiest thing to predict... and you are right it is easy to me when you have an item that you know what it cost you and what wages you are paying and so forth and so on... What I can't seem to wrap my head around is this...

I sell Insurance. I am an independent agent of a company. The only cost I have are monthly office and cost of doing business cost. The product isn't an on the shelf product that cost me anything to put to gether... my agents are paid directly from the insurance comapny. lada lada lada.

The known factors...
On lines (policies) I personally sell I get 70% commission. (which I will turn into the company and just draw a wage for the first couple years of $4000 a month)

On lines my agents sell I get 17.5% and the insurance company pays them their commission directly... so I don't even need to equate for their commission or pay in this equation (they are all on commission only).

A policy can vary in price depending on age, face amount, type of policy (ie term, whole life, or annuity etc) and so forth... but we are paid based on the annual premium. We average $2000 per sale.

So based on this how do I create my break even?

Any help with this would be greatly appreciated.

Originally Posted by Biggsie

Hello All,

I am going out on my own... taking that big step... and starting my own Life Insurance Company.

I have had other businesses before and understand the importance of a plan. The development of the plan is running smoothly. I have a vision and goals but one area I am hitting road blocks with are the Financials... Primarily the Break Even.

Now many of you are probably thinking that this is the easiest thing to predict... and you are right it is easy to me when you have an item that you know what it cost you and what wages you are paying and so forth and so on... What I can't seem to wrap my head around is this...

I sell Insurance. I am an independent agent of a company. The only cost I have are monthly office and cost of doing business cost. The product isn't an on the shelf product that cost me anything to put to gether... my agents are paid directly from the insurance comapny. lada lada lada.

The known factors...
On lines (policies) I personally sell I get 70% commission. (which I will turn into the company and just draw a wage for the first couple years of $4000 a month)

On lines my agents sell I get 17.5% and the insurance company pays them their commission directly... so I don't even need to equate for their commission or pay in this equation (they are all on commission only).

A policy can vary in price depending on age, face amount, type of policy (ie term, whole life, or annuity etc) and so forth... but we are paid based on the annual premium. We average $2000 per sale.

So based on this how do I create my break even?

Any help with this would be greatly appreciated.

You state that the majority of your expenses are fixed. In other words, the monthly expenses remain unchanged whether you sell 1 contract or 10 contracts. Establish a budget of your monthly total expenses. Assuming that they amount to $ 9.000 per month, and the commission income is 100% profit that does not need to be split with others, your breakeven point is $ 9.000 - the moment when you recover the total amount of your expenses. Any commission payment on top of the $ 9000 is gravy (profit!).
It is now up to you to figure out the various combinations of contracts and commission contributions received from other agents it takes to come up with a monthly commission income of $ 9000. Needless to say, this formula works only up to the point when you need to expand your organization and add staff or other "variable costs" that are driven by the volume of the business.
Werner Reisacher