EBITDA
Also known as: Earnings Before Interest, Taxes, Depreciation, and Amortization
EBITDA is earnings before interest, taxes, depreciation, and amortization — the cash-flow proxy buyers use as the denominator in agency valuation multiples.
What is ebitda?
EBITDA is the operating profitability of the agency, stripping out financing decisions (interest), tax structure (taxes), and non-cash accounting adjustments (depreciation and amortization). It approximates the cash the agency generates from its actual book of business in a given year.
For an insurance agency, EBITDA is calculated as: revenue minus producer compensation minus staff compensation minus operating expenses minus owner compensation. Each line has nuances. Producer compensation includes both base salaries and commission splits. Staff compensation covers CSRs, account managers, and admin. Operating expenses include rent, technology, E&O insurance, marketing, and professional fees. Owner compensation is the principal's draw on top of any production commissions.
Reported EBITDA is rarely what a buyer applies a multiple to. Buyers normalize the number first — see Normalized EBITDA.
Why it matters in agency valuation
EBITDA is the most important number in agency valuation. Buyers apply the EBITDA multiple to the normalized EBITDA to derive enterprise value. A $50K change in normalized EBITDA at a 9x multiple changes the agency's value by $450K. That's why owner compensation, T&E levels, and one-time expenses all get scrutinized in diligence.
Example
Related terms
Normalized EBITDA is reported EBITDA adjusted to reflect what the business would have earned at market-rate owner compensation and without one-time or owner-discretionary expenses.
An EBITDA multiple values an insurance agency at a fixed multiple of its normalized EBITDA, typically 4.5x to 12x depending on agency size, growth, and book quality.
EBITDA margin is normalized EBITDA divided by revenue, expressed as a percentage — industry-typical for a P&C agency is 20–25%.
Pro forma means 'as if' — a restated income statement showing what the business would look like under a different set of assumptions, typically post-normalization.
Owner compensation is the total amount the agency principal pays themselves — base salary, bonus, benefits, and owner perks — used as a key normalization in EBITDA-based valuation.
Last reviewed: April 24, 2026
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