For the past 25 years, the Big “I" and Reagan Consulting have partnered to produce the Best Practices Study, a comprehensive examination of the top-performing agencies across the country. The study compiles benchmarking data on key metrics of agency performance and value, including revenue growth and profitability, financial stability, expense management, and sales and operations productivity.
The annual Best Practices research focuses significantly on the importance of organic growth, especially as it relates to agency valuation. If you're not growing at or above industry averages, your agency is likely under-performing. Through the third quarter of 2018, here are the industry's organic growth results—how does your agency compare?
While the average agency posted organic growth totaling 6.1%, top-quartile firms managed to grow by an average of 9.4%. So, even if you are operating at industry averages, you may be under-performing versus your actual potential.
When growth deficiencies arise in top-performing agencies, Reagan often sees them respond by either making necessary growth investments or raising the bar for producer new business results, if appropriate.
Growth investments come in myriad forms: producer hiring and development, books of business or agency acquisitions, technology spends, sales training, addition or improvement of sales leadership, value-added resources for clients, expansion into new markets, development of niche capabilities and more.
The challenge for many agency owners is not understanding where they need to make growth investments, but rather understanding the cost-benefit tradeoff question: Are these growth investments ultimately worth it? The answer is generally a resounding yes.
Remember, from an agency valuation standpoint, one point of growth has the same impact on value as two points of profit. This means if you spend less than two points of margin to achieve a single point of sustainable growth, you will positively impact your agency's valuation. Too many agency owners are penny-wise and pound-foolish when it comes to making necessary growth investments. Just like avoiding regular oil changes on your car to save a few bucks, this strategy can cost you big in the long-run.
Stay tuned to next week's edition of the News & Views e-newsletter, when we will share how your agency can raise the bar for producers and nurture another area of growth opportunity.
In the meantime, identify your agency's benchmarking numbers and more with the data available in the six different revenue categories through the 2018 Best Practices Study Update. Questions? Email Best Practices staff.