2007 Best Practices Study

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2007 Best Practices Study
2007 Best Practices Study
INTRODUCTION
Since 1993 the annual Best Practices Studyhas 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 Studyprovides critical
performance benchmarks in six agency revenue
categories ranging from Under $1,250,000to 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.)
What’s New This Year
Revenue and Expense Breakout
In the past the study has consolidated revenues and
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.
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:
Pro forma EBITDA Margin times 50%
PLUS
Organic Revenue Growth Rate
EQUALS
Rule of 20 Outcome