2000 Best Practices Study

IV. Profitability - % of Net Revenues (Agencies with Revenues Less than $500,000) A. Profitability Ratios Average +25% Profit +25% Growth Pre-Tax Profit 9.2% 27.9% 17.7% Pro Forma Pre-Tax Profit (1) 15.2% 29.9% 17.1% Operating Pre-Tax Profit (2) 4.4% 17.2% 1.3% (1) The agency’s pre-tax profit when discretionary expenses (bonuses, compensation, and perks) made for the benefit of the owners, based solely on ownership, are removed, i.e. removing expenses that would not be incurred if a third party owned the agency. (2) Pre-tax profit minus contingents, bonus, and investment income.

Profitability

30.0%

25.0%

20.0%

15.0%

10.0%

5.0% % Net Revenue

0.0%

Pre-Tax Profit

Pro Forma Pre-Tax Profit (1)

Operating Pre-Tax Profit (2)

Average +25% Profit

+25% Growth

B. Growth in Profitability (% change from prior year)

Average +25% Profit +25% Growth

Net Revenues (Total) Compensation Expense Selling Expense Operating Expense Administrative Expense

0.3% 9.1% 8.8% 2.9%

6.6% 11.6% 5.3% 3.6%

10.0% 3.3% 5.4% 7.5%

-11.1%

-9.0% -24.5%

Pre-Tax Profit

-10.1% -11.8% -21.3% -16.9% -26.3% -25.1%

Operating Pre-tax Profit

Growth in Pre-Tax Profit

Growth in Net Revenues

12.0%

0.0%

10.0%

-5.0%

8.0%

-10.0%

6.0%

-15.0%

4.0%

-20.0%

2.0%

0.0%

-25.0%

Average

+25% Profit

+25% Growth

Average

+25% Profit

+25% Growth

Analysis of Agencies with Revenues Less than $500,000

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