10 vs. 15 commission math — the arbitrage dollar model.

If market-access arbitrage is the most reliable revenue synergy in agency M&A, the 10-vs-15 commission math is how a buyer turns that reliability into a defensible dollar figure. The framework explains why the lever works; this is the model that puts a number on it — precise enough to survive diligence and to justify the premium a direct-appointed buyer can pay over a financial one. Getting the math right, including the pieces buyers commonly miss, is what makes the synergy bankable.

§ 01 · The five-point modelThe core arbitrage.

The core model is a five-point delta: brokered business at roughly 10% net commission converting to direct at roughly 15%, per converted premium dollar. The worked example: a target with $3M of total commercial premium, of which $1.2M is brokered, and a buyer who holds direct appointments covering 80% of those brokered carriers — so $960K is convertible. Five points on $960K is $48K of annual incremental commission. The framework behind why this works (the three independences that make it durable) is in market-access arbitrage; this piece is the dollar model that sizes it, starting from the convertible subset rather than the gross brokered figure, because only the carriers the buyer holds directly can convert.

§ 02 · Network fees and EBITDA flowThe pieces buyers miss.

Two refinements separate a defensible model from a back-of-envelope one. First, network and cluster fees: brokered business that flows through a network or cluster carries an additional 1%–3% fee on premium, so converting to direct eliminates that fee too — a 2% network fee on the $960K convertible book is $19,200 of additional annual savings, which moves the effective arbitrage from five points to seven. A buyer who models only the commission delta and misses the fee elimination understates the synergy. Second, the EBITDA flow-through is unusually high — roughly $32K–$40K of the $48K incremental commission lands as EBITDA, because the conversion changes the commission path, not the service: the client receives the same policy, the same carrier, and the same coverage, so service costs don't rise. Most of the incremental commission is therefore margin, which is what makes arbitrage punch above its top-line weight in a valuation.

§ 03 · Convertibility and the timelineWhat actually moves, and when.

Two execution variables shape the realized value. Convertibility is the key buyer-side variable — the buyer's direct-appointment coverage of the seller's brokered carriers determines what share can actually move, and while the worked example assumed 80%, the real range is typically 60%–90% depending on appointment-portfolio overlap. Timing follows the renewal calendar, because brokered policies can't be unilaterally moved mid-term — conversion happens at each policy's renewal date, distributed across the 12-month cycle, which produces a three-stage capture: roughly 50% of run-rate arbitrage in year 1 (the renewals completed during year 1 capture about 70% of conversions), 85% in year 2, and the full run rate by year 3, with some clients on specific wholesale-channel requirements that may never reach 100%. The transition costs to model are modest but real — internal time to re-paper each conversion, brief commission gaps during the re-papering window, and friction with the incumbent wholesalers whose business is being moved. A buyer who models convertibility and the renewal-cycle timeline produces an arbitrage figure that holds up rather than one that assumes instant, total conversion.

§ 04 · The diligence and the EV mathWhy it's almost-certain value.

Three diligence questions size the lever for a specific pairing: what's the convertible subset of the seller's brokered book (the carrier overlap with the buyer's appointments), does the brokered business flow through a network or cluster (an additional fee to eliminate), and does the buyer have an execution track record on prior conversions. A seller can hand the buyer the model — a carrier-by-carrier breakdown of the brokered book, the specific wholesalers and networks involved, and the convertibility to direct per carrier — which earns higher offers from buyers who can execute it. The enterprise-value math makes the stakes concrete: $48K of annual incremental commission, at roughly a 3× EBITDA contribution and a 7–8× multiple, is $100K–$150K of incremental enterprise value a direct-appointed buyer captures over a financial buyer — on a $3M–$5M agency valuation, 2%–5% of total deal value from a single mechanically quantifiable lever. Because the arbitrage depends primarily on execution rather than external market conditions, for a buyer with multiple direct appointments and a conversion track record it earns the "almost certain" tier of the pro-forma — the highest-confidence synergy a buyer can model, detailed in the synergy pro-forma.

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