146 / 168
2014 Best
Practices Study
Agencies
with
Revenues
Over
$25,000,000
146
Analysis of Agencies with Revenues Over $25,000,000
Key Benchmarks
Profile
Revenues
Expenses
Profitability
Employee Overview
Producer Info
Service Staff Info
Technology
Insurance Carriers
Appendix
Average
Top 25%
Balance Sheet
Current Ratio
1.36:1
1.88:1
Tangible Net Worth (% of Net Revenue)
9.3%
27.2%
Receivables/Payable Ratio
52.6%
18.8%
Aged Receivables
% Receivables Aged Past 60 Days
4.4%
0.6%
% Receivables Aged Past 90 Days
3.2%
-5.2%
Average
+25% Profit
+25% Growth
Agency Billed vs. Direct Billed by Carrier
% of P&C Revenues that are Agency Billed
57.8%
49.6%
59.7%
% of P&C Revenues that are Direct Billed
38.7%
36.1%
40.3%
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 more, 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
+25% Profit Average +25% Growth Average
Rule of 20
19.0
21.3
26.6
Public Brokers
Organic
Growth
EBITDA
Margin
Rule of 20
Outcome
Willis Group
4.9% 24.0% 16.9
Aon
3.0% 20.9% 13.5
Brown & Brown
6.8% 33.5% 23.6
Arthur J. Gallagher
6.5% 19.9% 16.5
Marsh & McLennan 3.0% 20.7% 13.4
Rule of 20 Outcome
Organic
Revenue
Growth
1/2 of
EBITDA
Margin
Rule of 20 Score
+ =