What Farmers Insurance is Probably Doing
Published at 11:12 on 14 September 2011
I read the text of one of their spam messages before emptying my spam folder this morning, and what they’re offering to do is let you franchise an agency with them. So it’s not all that difficult to engage in a little conjecture and figure out what’s probably going on.
Franchises come with franchise fees, of course. Such fees get at least partially collected up front, regardless of how well a franchise does. (That’s supposed to serve as an incentive for a franchisee to try hard at the job of making the franchise successful.)
In Farmers’ case, however, they don’t particularly care if your franchise does all that well or not. They earn money mainly on the up-front fees, so they’ll doubtless sell a franchise to anyone with a pulse. This ensures that the landscape is literally crawling with Farmers franchises, which in turn ensures that your franchise will have a lot of competition.
Unless you’re a natural-born salesman (and most people are not), good luck. More than likely, most franchisees end up like Amway affiliates: their business is mostly limited to friends and family, who purchase based mostly to avoid the social awkwardness of saying “no” to someone who’s close to them. Thus the commissions earned (and, being a franchise, it’s all commissions; in the eyes of the law, you’re a business, not an employee) doubtless do not come close to recovering the franchise fees paid up front.
But why would Farmers care? They’ve got your money, and they’re operating under the Ferengi Rules of Acquisition.
That’s my theory, at least. But I’d be surprised if it’s terribly far off the mark.