2018 Best Practices Study

in the math behind the Rule of 20, which is calculated by adding half of an agency's pro forma EBITDA margin to its organic revenue growth rate.

An outcome of 20 or higher means an agency is generating a very high shareholder return (15% - 17%). A Rule of 20 outcome of 15 – 20, typical for Best Practices agencies in the current marketplace, is an indication of a very healthy balance of growth and profitability and shareholder returns in the low-to-mid teens.

While a careful eye must be kept on both organic growth and profitability individually, the Rule of 20 metric can be an invaluable aid in ensuring that an effective balance of these two critical value creation metrics is maintained.

Rule of 20

14.6

Rule of 20 Score = Organic Growth + ½ (EBITDA Margin)

> $25.0M

22.4

16.7

$10.0M-$25.0M

24.9

Score > 20 generates shareholder returns of 15-17%

15.4

$5.0M-$10.0M

26.6

18.1

$2.5M-$5.0M

27

19.2

$1.25M-$2.5M

34.2

17.7

< $1.25M

27.9

Average

Top Quartile

 24