Gross Profitability Relativity
Table 2 demonstrates the Gross Profitability Relativity. Agency “profitability” is defined as the combination of Gross Profit and compensation to the owners. In many agencies the owners ARE the producers, so we historically ask for Owners and Producers compensation together to define (as best as we can) the total compensation taken by the agency owners. We know this is inexact, but we found the information unreliable when we asked the agencies to distinguish between owners compensation for management and for production separated from production compensation for non-owner producers.
So the historical Gross Profitability Relativity on an industry level includes management compensation for owners and sales compensation (both for owners and for other producers). That combined with Pre-Tax Profit in agencies that don’t add a lot of non-business owners benefits in expenses define the agency’s Gross Profitability Relativity which can be tracked from year-to-year.
If you would like to track your own REAL Gross Profitability, take all forms of compensation to owners, any additional benefits to owners (that are not given to all other employees) and pre-tax profit and build a historical track record of those amounts as a percentage of Revenue. Revenue is defined as Gross Revenue net of commissions paid to brokers who place business (that they own) through the agency and for which the agency responds with a percentage of the commission to those brokers). Compare these percentages over time and determine if they are growing, steady or declining as a return to the owners for the agency’s income.