Understanding EBITDA: The Key to Accurately Valuing Your Insurance Agency

When it comes time for independent agency owners to retire, many look back to how they first bought their book of business — often at a simple multiple of revenue—and assume the same strategy will work today. But in today’s marketplace, that approach can be financially risky. Why? Because buyers are no longer just looking at revenue. Instead, they’re zeroing in on a specific financial metric: EBITDA.

Why EBITDA Matters More Than Profit Margin in Agency Valuations

EBITDA stands for earnings before interest, taxes, depreciation, and amortization. It’s often used as a standard for agency valuation because it removes many of the variables that don’t directly relate to day-to-day operations. In other words, it offers a cleaner picture of how much cash the business truly generates from its core activities.

Many agency owners confuse EBITDA with profit margin, but they’re not quite the same. While both relate to profitability, EBITDA specifically eliminates items that vary widely between businesses—such as tax structures, debt levels, and non-cash expenses—giving buyers a clearer baseline to evaluate agency performance. Since these costs would likely change with new ownership anyway, they don’t weigh as heavily into the valuation.

Boosting EBITDA: A Strategic Move for Agency Growth, Valuation, and Exit Planning

Maximizing EBITDA is especially important if you’re preparing to sell your agency or apply for financing. But that doesn’t mean a low EBITDA is always bad. In fact, if your business is investing in growth—such as hiring new producers or ramping up marketing—your EBITDA may drop temporarily, which can be a sign of strategic reinvestment.

The only time to worry about declining EBITDA is when the drop isn’t part of your plan. If it’s intentional and aligned with your agency’s goals, it can actually reflect strong leadership.

Here are three ways to increase your agency’s EBITDA:

• Purchase books of business: This brings in new revenue. Even if you use financing, the interest won’t reduce your EBITDA, only operating expenses will.
  
  
• Cut unnecessary operating expenses: Owners often run personal expenses through the business, which hurts EBITDA. Start trimming these if you’re planning to sell.
  
  
• Grow policies in force (PIF): Increasing your PIF—not just your revenue—is what today’s buyers and lenders want to see. They’re focused on quality growth, not just rate-driven gains.
  
  

Whether you're years away from retirement or actively preparing for a sale, understanding and managing your EBITDA is critical. It gives you the power to measure success, align your strategy with your goals, and confidently navigate conversations with buyers or lenders.

When you join AAI, you have a complete one-stop solution to building your independent insurance agency and growing it with the help of expert agents, top marketing and branding strategies, and cutting-edge technology. For more info, contact us today.