In insurance industry circles, there is a certain industry parlance tied to what independent agencies are worth. Agency owners have historically thrown out numbers like “I am worth “X” times revenue.” Many buy-sell agreements will incorporate language that stipulates that the value of the agency will be determined in such a manner at the time of a sale, or when settling an estate. Historically, the benchmark that was bantered about was 1.5 times revenue, but over time, the discussions evolved to where 2 times revenue became the standard multiple.
This evolution was mainly due to the feeding frenzy in the merger & acquisition space over the past ten years. A large influx of private equity money flooded the space and worked to drive up agency values. A large influx of cash, coupled with a stagnant independent agency plant, put the law of supply and demand into action. High demand plus low supply has led to all-time high pricing.
By using industry lore to establish the value of your agency, IA Valuations believes that you may either be inflating the value of your agency, or worse, shortchanging yourself with what is likely your greatest financial asset. An independent agency valuation is the key to determining your agency value, and can also help you understand what levers you can pull to increase value over time.
Consider the following example of two agencies that seem similar, but upon closer examination, turn out to be wildly different.
A Tale of Two Agencies
To illustrate our core belief that an agency’s value is more complex than just an “X times revenue” calculation, consider the following two agencies: Smith Insurance and Jones Insurance. Each agency earns $1.5 million in revenue and each agency believes that they are worth three million dollars (“two times revenue”). But, as we examine each agency more closely, we will see that there is much more than meets the eye. The agencies are vastly different in the way they manage their operations, how they compensate their employees, and how they drive growth and efficiencies. These differences will create a wide disparity in value.
By examining the salient components of agency operations, it is evident that these agencies are vastly different and would command very different pricing if they went out to market. By using the “two times revenue” value, Smith Insurance would be greatly undervalued, while Jones Insurance would be greatly overvalued.
Smith Insurance is running its agency like a business. An EBITDA (earnings before interest, taxes, depreciation, and amortization) margin of 25% suggests that they are exercising expense controls. The 12% margin for Jones Insurance suggests that their expense loads are out of control, or perhaps that they are running the agency as a lifestyle. While there is nothing inherently wrong with a lifestyle business, these low margins will give some buyers pause.
Furthermore, Smith Insurance is outperforming Jones Insurance in a number of key metrics: organic growth, key accounts, perpetuation planning, and investment in next-generation talent. Any buyer comparing these two agencies would value Smith Insurance more highly than Jones Insurance. The growth, a perpetuation plan that is in motion, young owners, and state-of-the-art technology will ensure that Smith Insurance commands premium pricing in the market.
The Importance of a Valuation
So, we have established why the one-size-fits-all technique for valuing agencies is highly inaccurate. We like to say that the multiple of revenue technique is an expression of value, while an agency valuation is a calculation of value. When you are ready to realize the value of your agency and your life’s work, do you want to value it on the back of a napkin, or take a deeper dive with a proper agency valuation?
An agency valuation will work to determine your value. This value will form a good baseline for you to consider as you move forward. However, it’s important to keep in mind that value is different than pricing. Given the current merger & acquisition climate, an agency could sell externally at a price much higher than the valuation, and this can be influenced by a buyer’s appetite for a certain geography, niche, or access to certain carriers. Additionally, an agency owner might sell at a discounted price to family or key employees to help facilitate the deal.
As part of our process, IA Valuations examines the agency financials to discover things such as growth rates, non-recurring revenues or expenses, and any expenses that are not essential to running the day-to-day operation (spouse’s car, family cell phones, country club memberships, etc.).
After examining these financials and making adjustments, we arrive at a pro forma EBITDA number. This number is indicative of the profit a third-party buyer could expect to pull out of the agency after adjusting and right-sizing expense loads. Then, we do a risk assessment of the agency, and this informs the valuation multiple. By examining the risk of the agency, we get a true picture of the risk of the agency. We consider many items, including:
- Owner age and perpetuation plan
- Growth
- Payroll and staffing
- Carrier mix
- Key accounts
- Producer and employee contracts
The valuation multiple is ratcheted up or down based on the strengths and weaknesses of each of the risk factors. As you can see below, this will have a large impact on the value of an agency.
The calculation of the value of each of these agencies shows the wide discrepancy between agencies that are the same size but have vastly different characteristics. Smith Insurance performs at a high level and has much lower risk than Jones Insurance. By doing many things right, and operating as a business versus a lifestyle, they are positioned to maximize their agency value.
Timing is key. We encourage agencies to not only get a valuation, but we encourage them to do it sooner rather than later. An agency owner who has one foot out the door and then decides to get a valuation will not be in a position to maximize their value. An owner that gets a valuation well before exiting the business will not only understand their value, but they will have enough runway to institute changes to increase the value prior to their exit.
If you see similarities between your agency and either the Smith or Jones Agencies in these examples, now is the time to act. Please reach out to Craig Niess, Director of Business Planning and Valuations at IA Valuations, at craig@iavaluations.com. We would love to help your agency reach its fullest potential.
By: Craig Niess, CVA, MBA
About IA Valuations and Agency Link – Founded in 2017, the IA Valuations team has performed over 270 valuations to independent insurance agencies across the U.S. Our advisors have 25+ years of experience guiding agency owners on maximizing their agency value, planning, and legal needs for ownership transition. In addition, IA Valuations has provided perpetuation planning, financial modeling and business planning for independent insurance agencies. Finally, IA Valuations has advised dozens of agency owners on selling their agencies through our Agency Link process. Agency Link is a platform that connects buyers and sellers together to further the growth and strength of the IA system. To learn more about IA Valuations, please visit IAValuations.com or contact@iavaluations.com.
The information provided in these documents is general in nature and shall not be construed as personal legal, tax or financial advice for your situation. Please contact@iavaluations.com to discuss your personal situation. Copyright ©2025 by IA Valuations and Ohio Insurance Agents Association (OIA). All rights reserved. No portion of this document may be reproduced in any manner without the prior written consent of IA Valuations or OIA. In addition, this document may not be posted as a link on any public or private website without the prior written consent of IA Valuations or OIA.