94 / 168
2015 Best
Practices Study
Agencies
with Revenues
Between
$5,000,000 and
$10,000,000
94
Analysis of Agencies with Revenues Between $5,000,000 and $10,000,000
Key Benchmarks
Profile
Revenues
Expenses
Profitability
Employee Overview
Producer Info
Service Staff Info
Technology
Insurance Carriers
Appendix
Note: See page 163 for an explanation of column headings
Average
Top 25%
Balance Sheet
Current Ratio
1.37:1
2.06:1
Tangible Net Worth (% of Net Revenue)
11.0%
29.3%
Receivables/Payable Ratio
42.4%
8.3%
Aged Receivables
% Receivables Aged Past 60 Days
12.7%
0.6%
% Receivables Aged Past 90 Days
1.9%
-14.8%
Average
Top 25% Profit Top 25% Growth
Agency Billed vs. Direct Billed
% of P&C Revenues that are Agency Billed
29.3%
22.1%
35.2%
% of P&C Revenues that are Direct Billed
70.7%
78.0%
64.8%
Financial Stability
Accounts Receivable
The Rule of 20 is a simple growth and profitability balancing equation that provides a quick way to determine
whether or not an agency is creating value for its shareholders. It states that an agency will drive industry-standard
shareholder returns if the sum of (a) its organic growth rate and (b) 1/2 of its EBITDA margin equals or exceeds 20.
Generally speaking, an outcome of 20 or higher, regardless of the different combinations of growth and
profitability, indicates that the agency’s shareholders can expect to earn 15% -17% per year through stock price
appreciation and/or shareholder distributions.
• Provides a tool to benchmark agency performance
• Helps frame the trade-off between growth and
profitability
What is the Rule of 20?
Average
Top 25% Profit
Top 25% Growth
Rule of 20
18.0
25.4
22.7
Public Brokers
Organic
Growth
EBITDA
Margin
Rule of 20
Outcome
Willis Group
3.8% 22.8% 15.2
Aon
2.0% 21.5% 12.8
Brown & Brown
3.5% 33.7% 20.4
Arthur J. Gallagher
5.5% 20.5% 15.7
Marsh & McLennan 3.0% 21.4% 13.7
Rule of 20 Outcome - 12/31/14
Organic
Revenue
Growth
1/2 of
EBITDA
Margin
Rule of 20 Score
+ =