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 also producers, so we historically ask for Owners and Producers compensation together to define the total compensation taken by the agency owners. That, combined with Pre-Tax Profit, defines the agency’s Gross Profitability Relativity which can be tracked from year-to-year.
If you would like to track your own agency 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. Then build a history 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.