Book quality is the second target filter, and it's where revenue stops being a useful number. Five filters read the book's actual health, each with a threshold a buyer can apply before committing diligence dollars. The point of the thresholds is that they convert a vague "good book" judgment into a screen — a target that fails the retention or concentration filter is flagged immediately, when walking away is free, rather than discovered deep in a diligence the buyer has already paid for.
§ 01 · The five filtersThresholds, not judgments.
| Filter | Threshold |
|---|---|
| Retention | ≥85% (90%+ aspirational, under 80% a leaky bucket) |
| Concentration | No single client over 10% (15%+ a whale problem) |
| Loss ratios | Under 65% average — request three years of carrier loss runs |
| Client demographics | Median client age aligned with the buyer's strategy |
| Agent dependence | Flag concentration on one producer for cultural diligence |
The five filters together give a structured read of the book's durability. Retention is the headline — 90%+ is aspirational for P&C, 85–90% is solid, and under 80% is a leaky bucket. Concentration caps a single client at 10%, with anything above 15% a whale problem. Loss ratios under 65% average signal a well-managed book; the standard is three years of carrier-issued loss runs from every target. Client demographics screen for an aging book, and agent dependence flags whether the relationships sit with the agency or one producer. A target clearing all five is a clean book; a target failing one needs either a structural fix or a walk.
§ 02 · The leaky bucketWhy retention is the headline.
A leaky bucket — retention under 80% — is the filter that bites hardest, because the loss is immediate and compounding. A $1M agency losing 30% of its book is $300K of revenue gone by Day 2, which the buyer has to replace just to stay flat before any growth at all. A buyer pays a multiple on revenue that's actively draining — which is why the retention filter comes first.
The leaky-bucket math is what makes retention the headline filter. A book that doesn't retain isn't a book that grows slowly — it's a book that shrinks, and the buyer paid a multiple on revenue that's leaving. The $300K-on-Day-2 figure on a $1M agency at 30% loss is the concrete version: that's revenue the buyer now has to replace through new business just to hold the line, before the deal delivers any growth. A high-retention book compounds in the buyer's favor; a leaky bucket compounds against them, and the retention filter catches the difference before the price is set.
§ 03 · The whale and the financingConcentration's hidden cost.
Concentration carries a cost beyond the obvious risk: it can kill the financing. A whale problem — a single client above 15% of revenue — triggers a flat lender refusal: SBA lenders won't finance a high-concentration deal without an earnout, a lower price, or a personal guarantee. So a concentration flag isn't just a risk to price; it's a structural obstacle to closing. The fix is the earnout — "$2M at closing plus $500K at 12 months conditional on the whale client's retention," with a 90% retention threshold convention (some sellers negotiate 85%). The earnout converts the concentration from a deal-killer into a shared, financeable risk, which is why the concentration filter doubles as a financing-feasibility screen — a buyer who spots the whale early can structure around it rather than discovering at the lender that the deal can't be funded as priced.
§ 04 · The melting ice cubeThe demographic filter.
The demographic filter catches the risk that doesn't show in any current number: the melting ice cube. A book with an average client age of 75+ shrinks naturally over the next decade through mortality and downsizing — it looks healthy today and is structurally declining, which makes it a poor fit for a growth-focused buyer regardless of current revenue. The investigation method is concrete: request the age distribution of the top 50–100 clients, cross-reference renewal-date clustering, and check the net new-client acquisition rate over the past three years. A book that isn't acquiring new clients and skews old is melting; one with a balanced age distribution and steady new-client flow is durable. The five filters together — retention, concentration, loss ratios, demographics, and agent dependence — are the buyer's structured read of whether the book is worth the diligence, and each threshold is a place to flag a problem while walking is still free.
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Terminology on this shelf
- Five book-quality filters
- Retention, concentration, loss ratios, client demographics, and agent dependence.
- Leaky bucket
- Retention under 80% — a $1M book losing 30% is $300K gone on Day 2.
- Whale problem
- A single client above 15% of revenue — triggers an SBA lender refusal without an earnout.
- Loss-run standard
- Three years of carrier-issued loss runs, screening for an under-65% average.
- Melting ice cube
- An aging book (average client 75+) that shrinks structurally regardless of current revenue.
- Agent dependence
- Relationships concentrated on one producer — a flag for cultural diligence.