2024 Best Practices Study

ABC Insurance Agency Pro Forma Income Statement for the year ended December 31, 2023

Pro Forma Adjustments

Actual

Pro Forma

Notes

Revenues P&C Commission and Fees

2,851,207

2,851,207

P&C Contingents

299,505

45,995

345,500

Adjust to trailing three-year average

L&H Commission and Fees

1,505,662

1,505,662

L&H Overrides

122,000

122,000

Total Operating Revenue

4,778,374

4,824,369

Investment Income

14,505 125,000

14,505 75,000

Miscellaneous Income

(50,000) (4,005)

Eliminate non-recurring life insurance proceeds

Total Revenue

4,917,879

4,913,874

Expenses Compensation Expense

3,196,621

(255,000) (17,500) (55,000)

2,941,621

Eliminate non-recurring bonuses

Selling Expense

245,894 688,503 73,768

228,394 633,503 73,768

Eliminate 25th anniversary party expense Eliminate non-recurring legal expense

Operating Expense

Administrative Expense

Total Expense

4,204,787

(327,500)

3,877,287 1,036,587

Profit $ Profit %

713,092

14.5%

21.1%

When referring to pro forma profitability, the Best Practices Study generally cites EBITDA, or Earnings Before Interest, Taxes, Depreciation, and Amortization. In this year’s Study, the industry’s profitability levels remained historically high.

Rule of 20 The Rule of 20, partially a financial metric and partially a growth metric, is the best indication of an agency's likely investment return to its shareholders. It is calculated by adding organic growth to 50% of pro forma EBITDA. Agencies attempting to grow their values face a dilemma: Should they focus on growth at the expense of profitability or 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.

Rule of 20

26.9

26.8

26.4

25.5

25.3

24.8

24.5

24.3

23.4

22.4

22.3

21.7

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

2023

2024

The Rule of 20 is a simple tool for determining whether an agency creates value for its shareholders. Generally speaking, an outcome of 20 or more, regardless of the different combinations of growth and profitability, indicates that an agency's shareholders can expect to generate a healthy investment return. The Rule of 20 is the most critical benchmark in the Best Practices Study for assessing an agency’s overall health. For the third consecutive year, driven by exceptional growth and profitability, each revenue category scored a 20 or higher on the Rule of 20 metric.

The industry is very healthy, indeed.

Study Highlights

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