2002 Best Practices Study

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

PROFITABILITY (as % of Net Revenues)

A. Profitability Ratios

Average

+25% Profit

+25% Growth

Pre-Tax Profit

17.4% 21.9%

33.2% 41.6% 19.9%

21.8% 24.5%

Pro Forma Pre-Tax Profit (1) Operating Pre-Tax Profit (2)

7.1%

6.9%

(1) The agency's pre-tax profit when discretionary expenses (bonuses, compensation, and perks) made for the benefit of the owners, based solely on ownership, are removed (i.e., removing expenses that would not be incurred if a third party owned the agency.) (2) Pre-tax profit minus contingents, bonus and investment income.

Profitability

10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% % Net Revenue

0.0% 5.0%

Pre-Tax Profit

Pro Forma Pre-Tax Profit (1)

Operating Pre-Tax Profit (2)

Average +25% Profit

+25% Growth

B. Growth in Profitability (% change from prior year)

Average

+25% Profit

+25% Growth

Net Revenues (Total) Compensation Expense

12.0%

14.4%

25.3% 21.7% 16.9% 11.5% 22.0% 11.4% -20.0%

9.2%

7.7%

Selling Expense Operating Expense

12.8% 7.9% -2.4% 5.3% 18.6%

11.0%

9.2% 8.1%

Administrative Expense

Pre-Tax Profit

16.7% 39.8%

Operating Pre-tax Profit

Growth in Profitability

10.0% 15.0% 20.0% 25.0% 30.0%

0.0% 5.0%

Net Revenues (Total)

Pre-Tax Profit

Average +25% Profit +25% Growth

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