2023 Best Practices Study

Rule of 20

The Rule of 20, which is partially a financial metric and partially a growth metric, is the best indication of an agency’s likely shareholder return. The Rule of 20 is calculated by adding organic growth to 50% of pro forma EBITDA.

Agencies attempting to grow their values face a dilemma – focus on growth, at the expense of profitability, or focus on profitability, at the expense of growth? The Rule of 20 is a helpful metric to ensure that an agency’s balance of growth and profitability is healthy.

The Rule of 20 is a simple tool to determine if an agency is creating value for its shareholders. Generally speaking, an outcome of 20 or more, regardless of the different combinations of growth and profitability, indicates that the agen cy’s shareholders can expect to generate a very healthy investment return (15-17%). As would be expected based on this year’s growth and profitability results, this year’s Rule of 20 results were exceptional. Rule of 20 results improved in four of the six revenue categories and all revenue categories posted results north of 20, an indication that shareholder returns are at record levels.

Rule of 20

28.1

26.9

26.5

25.3

24.5

24.3

23.7

23.5

22.4

22.3

22.3

21.1

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

2022 2023

Productivity

One of the best metrics to assess overall agency health is revenue-per-employee. Revenue-per-employee is simply an agency's revenue divided by its full-time equivalent employees. A low revenue-per-employee result may indicate that an agency is over-staffed, poorly structured, or needs improved technologies, systems and procedures. Most importantly, low revenue-per-employee results indicates an agency is likely delivering a sub-par investment return to its shareholders.

Revenue per Employee

$256,811

$245,503

$233,451

$207,698

$215,103

$195,217

$186,019

$195,961

$170,674

$176,214

$161,153

$134,607

<$1.25M

$1.25-2.5M

$2.5-5M

$5-10M

$10-25M

>$25M

2022 2023

This critical metric confirms that Best Practices agencies are continuing to improve productivity levels. In all but one revenue category, revenue-per-employee results increased. Best Practices agencies are hitting on all cylinders in terms of productivity.

Study Highlights

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