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Higher margin means slower growth
Over the last 20 years, a broker with 3% higher margin probably has 1% less organic growth. The brokers that don't push organic growth earn higher margins because they aren't investing in producers or go-to-market. A competitor's EBITDA margin can be enough to guess its organic growth.
A solid insurance broker has EBITDA margins in the range of 28 to 35%, and margins rise as brokers get larger because of scale advantages and operating efficiencies.
Organic growth is what drives the valuations of the large public companies, more than total growth, which includes acquisitions. The best success stories do both.
Why does hiring producers cut margins?
A new producer typically takes several years to build a book of business. Salary and support costs begin immediately, while commission revenue arrives slowly. That drags on margin in the short run. In brokerages, producers are the salespeople who bring in new clients.
Why do investors prize organic growth?
Organic growth measures how fast the existing business expands without buying anything. Acquired growth costs capital, and a rival can buy the same targets. Public brokers report organic revenue growth separately, excluding acquisitions, dispositions, and currency changes. Organic growth comes from new clients, higher retention, and rising premiums.
Why do margins rise with scale?
Compliance, technology, and finance teams are costs that don't grow in step with revenue. A larger broker spreads those costs over more premium. It can also buy software and services at volume. Economists call the effect economies of scale.
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