2024 Best Practices Study

Effective Investments in Growth: Calculating the NUPP

Step 1: Find the total compensation of all unvalidated producers Number of Unvalidated Producers

3

Actual Payroll of Unvalidated Producers $174,000 Step 2: What would the unvalidated producers earn under the agency’s normal producer commission schedule? Unvalidated producer's total book of business $125,000 Agency blended commission rate 32% Implied (“earned”) compensation $40,000 Step 3: Calculate the NUPP as a percentage of revenues Actual payroll of unvalidated producers $174,000 Implied (“earned”) compensation ($40,000) NUPP $134,000 Agency Net Revenues $7,500,000 NUPP - Net Unvalidated Producer Pay (as % of revenues) 1.8%

In other words, NUPP measures what an agency's unvalidated producers were paid versus what they earned. It is a fundamental measure of an agency's investment in producer development, critical to its long-term growth capacity.

Generally speaking, a NUPP of 1.5% - 2.0% is considered healthy. In the 2024 Study , each revenue category exceeded this 1.5% NUPP minimum threshold, indicating that Best Practices agencies are appropriately reinvesting in their future growth engines.

Profitability

EBITDA = Earnings Before Interest, Taxes, Depreciation and Amortization.

Profitability is another of the most critical Best Practices Benchmarks. Without adequate levels of profitability, shareholder returns will suffer, and agencies will struggle to have the capital necessary to reinvest in the future.

Think of EBITDA as pre-tax cash flow.

When measuring profitability, the Best Practices Study focuses on pro forma profitability. Pro forma is Latin for “as if,” indicating that we are adjusting an agency's reported financials. To arrive at pro forma profitability, normalizing adjustments are made to an agency's reported financials to restate them after accounting for non recurring and non-operating events. In other words, pro forma profit reflects an agency's true and sustainable profitability after the numbers are cleaned up to remove any static.

Pro Forma EBITDA

30.9%

30.0%

28.8%

27.5%

27.2%

26.6%

25.8%

25.8%

25.2%

24.8%

21.9%

21.4%

<$1.25M $1.25-2.5M $2.5-5M $5-10M $10-25M >$25M

2023

2024

Study Highlights

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