Over the course of the last five years, the team at IA Valuations has performed over 200 valuations for independent agencies. We have analyzed a wide variety of agencies, ranging from small agencies in rural areas to larger, more sophisticated agencies in major metropolitan areas. One thing that remains true from our experiences is that each agency is unique and every agency faces their own set of challenges and successes.

The following article will shed light on three factors found in each of the top performing agencies we have seen over the years. Use these factors as a guideline and measuring stick for your own agency; find areas that can be improved and expanded upon.

Broad Distribution of Ownership

The first factor we have seen with our top performing agencies is they all have multiple owners. Our data shows an average of 2.88 owners amongst our top performers. The distribution of ownership has proven to show immense benefits for agencies. Broadly held ownership shows a commitment to reinvest in the agency and offering stock to key employees.

The result is a strong emphasis on the health and well-being of the agency, and the focus on long-term success. Along with multiple owners, there is also a widespread distribution of age between owners. These agencies are placing an emphasis on getting the younger generation involved, and quite frankly, the earlier the better for everyone. Agencies with widely distributed ownership are also more likely to have internal perpetuation plans in place. These plans ensure that the current owners are following a roadmap that will guide them to increase value over the long run, as well as prepare the next generation of owners when the time comes to perpetuate.

Finally, those that share in the fruits of ownership (dividends/distributions) are more inclined to work harder and sell more, bringing in bigger paydays for all parties. Agencies with multiple owners are not preparing for success today, but also successes for years to come.

Overall, these agencies are incorporating a growth mindset. By offering ownership to the key employees who help your agency grow, you are not only rewarding them for that growth in the short-term, but also creating a growth engine that will increase the value of the agency over time.

This graph demonstrates the average shareholder age in our top performing agencies, which sits at an average age of 56.7 years old. Seven of these nine agencies have a shareholder below the age of 50, but still maintain the older and experienced staff. We have found that the balance of the older and newer generations can really provide a positive impact on an agency.

Year-Over-Year Revenue Growth

Continuing with the growth trend, our top agencies have enjoyed an average two-year growth around 16%. Growing your agency book is easier said than done, but committing to a growth mindset and engraining these ideals into the culture of an agency is the essential first step. A growth mindset can result in higher morale for employees. A growth mindset can also be achieved with the first commonality, broadening the distribution of ownership.

Two-year growth, between even the best performing agencies, can fluctuate significantly. The most important thing is positive growth over the two-year period. Find a goal for your agency and set the bar for where you want your agency to be over time. Creating goals, visions, and specific metrics to hit can significantly impact an agency culture.

As we know, the IA systems is constantly ever-changing. Agencies that keep up and evolve with the times maintain success as they build their agency and business. In order to be successful, it is vital to emphasize growth, seek out opportunities, hunt for new business, retain clients, prepare for the future, and build upon past performances. As you can see in the chart about, even the best agencies go through down or underperforming years, but the key is to limit times of negative growth and consistently seek out growth.

Agencies that are successful in the independent system are growing. They are seeking out opportunities (mergers & acquisitions), hunting for new business, retaining clients, preparing for the future, and most importantly, building upon the previous year’s performance.

Profitability Margins

The third factor we have found among our top valued agencies is that they all operate with very high EBITDA profitability margins. EBITDA (earnings before interest, taxes, depreciation, and amortization) is used to analyze an agency’s operating performance. Our top agencies are running profitability margins greater than 25%. Running high margins indicates that the agency is running a tight ship. We see these agencies operating like they are running a business, and not a lifestyle. High margins will enable these agencies to continue to invest in NextGen talent, and technology that will increase their value over time. Alternatively, agencies that run thin margins, have trouble reinvesting in their agency, and because the lack of cash flow from the operation, their value will be depressed, and they will be a less desirable acquisition target.

The most successful agencies we have worked with all share similar characteristics that drive agency value – they distribute ownership broadly, focus on profitable growth, and improving their margins. Offering ownership opportunities to key employees incentivizes them to grow the business, year-over-year. By focusing on healthy margins, the agencies are able to invest in keeping the growth engine going, and the ability for all key stakeholders to share in the fruits of their labor.

The first step is to assess where your agency stands in terms of operations and recognize the areas of improvement. Getting a valuation is a vital first step that will help agency owners to know their agency more intimately and propel agency performance to new heights. Once a comprehensive valuation of an agency is completed, then you can take the steps to improving specific areas. A valuation is a steppingstone and powerful tool to enhance an agency.

We have seen that agencies with a broad distribution of ownership, year-over-year growth, and high profitability margins are successful both in the present and their future years as an agency. They know their agency intimately, and as a result, can adjust and fix areas of need. The first step to understanding these factors would be to get a valuation and gain a full, comprehensive understanding of your agency and numbers. For more information on the vital factors of successful agencies, please contact Luke Hippler, MBA at luke@iavaluations.com.

About IA Valuations and Agency Link – Founded in 2017, the IA Valuations team has performed over 200 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 ©2023 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.      

By: Luke Hippler, MBA

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