In a valuation conversation, vocabulary is leverage. A buyer who says "EBITDA" means the Pro Forma version; a seller who reports raw pre-tax profit is answering a different question. This is the profitability-study vocabulary with its formulas; the operational-study glossary is the benchmark glossary.
§ 01 · Profit and valuationThe terms that set the multiple.
EBITDA — earnings before interest, taxes, depreciation, and amortization — is the operating-profitability base a multiple is applied to, expressed as a percent of net revenue. Pro Forma is the version that actually matters: EBITDA normalized by capping owner salary at a market rate, removing non-business perks, adding back one-time expenses, and normalizing family compensation. Operating pre-tax profit strips out investment income and other non-operating items. And the Rule of 20 — organic growth rate plus profit margin — is the one-number valuation screen, with 20 the premium threshold.
| Term | What it is |
|---|---|
| EBITDA | Operating profit before interest, taxes, D&A — the valuation base |
| Pro Forma EBITDA | EBITDA normalized for owner comp and one-time items — what buyers price |
| Rule of 20 | Organic growth % + profit margin %; ≥20 = premium |
| Organic growth | (Current − Prior − Acquired) ÷ Prior revenue |
| Tangible net worth | Assets − intangibles − liabilities |
§ 02 · The growth familyThree different numbers.
"Growth" is the most over-loaded word in benchmarking. Organic growth — renewal plus new business, excluding acquired revenue — is the key valuation metric, calculated as current revenue minus prior minus acquired, over prior. Renewal growth isolates the year-over-year change in renewing-policy revenue, driven by rate and retention. New-business growth is revenue from new clients or new coverage. And total growth is organic plus acquired. A buyer cares overwhelmingly about the first — acquired growth doesn't prove the underlying engine works.
§ 03 · Productivity and peopleOutput and succession.
Net revenue (gross minus brokerage commission expense) is the standard basis for every productivity metric. Revenue per employee (net revenue ÷ full-time equivalents) is the headline productivity benchmark; spread (net revenue minus total compensation) and spread per employee measure how much each person produces above their cost. On people and succession, WAPA (weighted average producer age) and WASA (weighted average shareholder age) drive M&A timing — both above 55 signal high risk — and NUPP (the investment in developing new, unvalidated producers) measures the organic-growth pipeline an agency is funding.
A valuation argument is won or lost on definitions. "EBITDA" without "Pro Forma," "growth" without "organic" — each gap is a few points of margin, and a few points of margin is the whole negotiation.
§ 04 · Reference and stabilityHow to read against peers.
Two reference frames matter. The average is the mean across study agencies in a tier — the primary benchmark — while the top quartile is the top 25% on a metric, the aspirational stretch goal; the performance gap is simply the agency's result minus the benchmark. On stability, current ratio (current assets over liabilities; target 1.5+) and tangible net worth (assets minus intangibles minus liabilities) are the balance-sheet reads acquirers use for working-capital and earnout terms. The way these flag against peers is the BPS variance guide, and the source map across all the studies is the benchmark library.
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Terminology on this shelf
- Pro Forma EBITDA
- EBITDA normalized for owner compensation and one-time items — the figure buyers actually price.
- Organic growth
- Renewal plus new business, excluding acquired revenue — the key valuation growth metric.
- Spread per employee
- Net revenue minus total compensation, per FTE — revenue produced above cost.
- NUPP
- The investment in developing new, unvalidated producers — the organic-growth pipeline.
- Top quartile
- The top 25% of study agencies on a metric — the aspirational benchmark.