2007 Best Practices Study

2007 Best Practices Study

INTRODUCTION

expenses into fairly broad categories making some comparisons difficult. Factors such as corporate structure (e.g., C corporation versus S corporation) further complicated expense comparisons because of what was or was not reflected on the income statement. This year the study provides greater detail for both revenues and expenses which provides more meaningful benchmarks for better “apples-to-apples” comparisons. The new breakdowns include: Source of Revenues – Bond revenues have been separated from Commercial P&C commissions & fees for a more accurate look at P&C sources of revenues. A new line, Value Added Services, has been added under both P&C and L&H to show fees derived from the delivery of such services. Compensation Expense – Both Payroll and Benefits have been broken down to provide a better understanding of the participating agencies’ costs – what costs are somewhat fixed (payroll taxes) versus discretionary costs (retirement benefits, insurance, etc.). Selling & Operating Expense –These expense categories now include greater detail, including any depreciation and amortization expense associated with the category. This allows for a more accurate picture of the total expenses incurred as both cash (e.g. monthly lease payment) and non-cash expenses (e.g. computer depreciation expense) are captured.

Since 1993 the annual Best Practices Study has served as a tool to help agency owners and managers understand how their business operations perform and measure up to the top performing firms across the country. It is a “must have” for those agencies that want to become the best they can be. The 2007 Best Practices Study provides critical performance benchmarks in six agency revenue categories ranging from Under $1,250,000 to Over $25,000,000. Agencies can measure, evaluate, and compare results for agency operations including:

> Income & Expense Distribution > Revenue & Profitability Growth > Production & Service Staff Compensation/Productivity > Technology Expenses > P&C and GL&H Carrier Representation > And much more

This year’s study offers a more comprehensive look at the 195 agencies selected as the 2007 Best Practices Agencies. In addition to their financial and operational results, the study also takes a look at a variety of management issues including: > Factors most critical to success > Top challenges > Keys for maximizing productivity > Keys for gaining a competitive advantage Several new performance benchmarks have been added including a more detailed breakdown of revenues and expenses, and the “Rule of 20” score that indicates whether shareholder value is being created. (For more details see below.)

The “Rule of 20” Score

In recent years, Reagan Consulting has developed a metric called the “Rule of 20” to provide a quick means of calculating whether or not an agency is creating significant value for its shareholders. It is the sum of an agency’s:

What’s New This Year

Pro forma EBITDA Margin times 50% PLUS Organic Revenue Growth Rate EQUALS Rule of 20 Outcome

Revenue and Expense Breakout

In the past the study has consolidated revenues and

2007 Best Practices Study