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2013 Best

Practices Study

Agencies

with Revenues

Between

$1,250,000 and

$2,500,000

51

Analysis of Agencies with Revenues Between $1,250,000 and $2,500,000

Key Benchmarks

Mgmt. Perspectives

Profile

Revenues

Expenses

Profitability

Employee Overview

Producer Info

Service Staff Info

Technology

Insurance Carriers

Appendix

Average

Top 25%

Balance Sheet

Current Ratio

2.25:1

3.87:1

Tangible Net Worth (% of Net Revenue)

12.3%

26.6%

Receivables/Payable Ratio

54.4%

-6.5%

Aged Receivables

% Receivables Aged Past 60 Days

18.1%

2.9%

% Receivables Aged Past 90 Days

7.9%

-1.8%

Average

+25% Profit

+25% Growth

Agency Billed vs. Direct Billed by Carrier

% of P&C Revenues that are Agency Billed

21.3%

18.9%

21.1%

% of P&C Revenues that are Direct Billed

78.7%

81.1%

79.0%

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

24.7

33.8

36.4

Public Brokers

Organic

Growth

EBITDA

Margin

Rule of 20

Outcome

Willis Group

3.1% 25.6% 15.9

Aon

4.0% 20.6% 14.3

Brown & Brown 2.6% 32.9% 19.1

Arthur J. Gallagher 4.7% 19.1% 14.3

Marsh & McLennan 5.0% 18.7% 14.4

Rule of 20 Outcome

Organic

Revenue

Growth

1/2 of

EBITDA

Margin

Rule of 20 Score

+ =

“Rule of 20” Score