16 / 185
16
2007 Best Practices Study | Agencies with Revenues Under $1,250,000 | Revenues/Expenses
Appendix
Insurance
Carriers
Technology
Service
Staff Info
Producer
Info
Employee
Overview
Financial
Stability
Revenues/
Expenses
Executive
Perspectives
Profile
Agencies with Revenues Under $1,250,000
Average +25% Profit
+25% Growth
“Rule of 20” Score
Profitability
0%
10%
20%
30%
60%
A New Statistic for the 2007 Best Practices Study
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 EBITDA margin times 50% plus the organic
revenue growth rate.
The secret to the rule of 20 is the weighting of the
relative importance of organic growth versus EBITDA
when it comes to creating shareholder value. Generally
speaking, an outcome of 20 means an agency is
generating a shareholder return of approximately 15%-
16%, which is commonly viewed as the “expected” rate
of return for a well-run insurance agency. A score of less
than 20 indicates room for improvement, while a score
above 20 is outstanding.
Rank Public Brokers
Organic
Growth
EBITDA
Margin
Rule of 20
Outcome
1 Brown & Brown
4.5% 38.8% 23.9
2 Willis Group
8.0% 21.3% 18.7
3 Hub Group
5.0% 26.7% 18.4
4 Hilb, Rogal & Hobbs
4.4% 27.0% 17.9
5 Arthur J. Gallagher
6.0% 21.2% 16.6
6 USI
1.8% 20.7% 12.2
7 Marsh & McLennan 2.0% 14.2% 9.1
8 Aon
2.0% 13.9% 9.0
Rule of 20 Outcome
In 2006, only one public broker, Brown & Brown,
achieved a Rule of 20 outcome of 20 or more, as is shown
in the table above.
Median
+25% Profit Median +25% Growth Median
“Rule of 20” Score
22.8
33.1
29.8
40%
50%
Pre-Tax Profit
erage
25% Profit
25% Growth
Pro Forma EBITDA
EBITDA
Pro Forma
Pre-Tax Profit
Operating
Pre-Tax Profit