Leaders often see good year-end margins and assume the business is healthy. But do they know precisely where the firm’s profit is coming from? If not, how reliable will that profit be going forward? Are there issues lurking around the corner, issues that the right lens could reveal before it’s too late? MarshBerry has identified Critical Performance Indicators (CPIs) – ratios that reveal a firm’s true operational health. This article dives into three of the profitability ratios that help owners forecast, sustain, and improve profitability:
- Contingent and Override Consistency Ratio
- Employee Marginal Profitability
- Servicing Cost Per Dollar of Commission
By consistently tracking and benchmarking these metrics, a firm can gain the ability to anticipate pressure on performance before it appears on the bottom line. Data from MarshBerry’s Connect membership show this discipline leads to stronger owner returns and more valuable firms over time.
Here’s a look under the hood.
1. Contingent and Override Consistency Ratio
This might be considered a measurement of the stability of pure profit. The ratio measures whether a firm can regularly capture carrier-related profit. Higher and more consistent values indicate:
- Stronger carrier relationship management.
- Proactive risk-placement discipline.
- Strategic aggregation and negotiation with carriers.
Contingent and override commissions typically flow directly to the bottom line — they are high-margin income with little incremental cost to earn. But without consistency, this income stream becomes too unpredictable to support confident growth planning. The ultimate goal is to achieve stable contingent and override income but not build this profit into future budgets, since it’s not guaranteed.
Interestingly, firms with a MarshBerry Connect membership have spent an increased amount of time sharing best practices on how to negotiate contingencies tied to growth, retention, and loss outcomes as a way to enhance their carrier profitability. When consistent carrier profit becomes a managed strategy, monitored independently or by joining a professional network such as FirstChoice, a MarshBerry Company, firms can avoid a year-end surprise, unlock better margin planning, maintain less volatile cash flows, and foster improved business valuation.
2. Employee Marginal Profitability
This can be thought of as the true value each person generates. Payroll is the largest expense at most firms. This ratio measures how much each employee contributes to profit after covering their compensation. Firms that outperform don’t simply work harder — they use this ratio to work smarter, by:
- Aligning roles so the right tasks are handled at the right level.
- Optimizing workloads through virtual assistance or automation.
- Giving producers more room to sell, and service teams more support to scale.
Firms with 5+ years in Connect show significantly stronger employee margin contributions, and at 10+ years, the advantage is dramatic. To illustrate, here are some Connect firms that are using this ratio effectively:
- Atlas Insurance is outsourcing high-volume-low-value tasks to virtual assistants in the Philippines, giving their onsite staff more capacity to service and round out their book of business.
- Dillingham Insurance takes role alignment to an even more sophisticated level by establishing Account Executive roles that are an extension of producers, but more elevated than account managers.
Time spent in high-performance environments like these compounds efficiency gains. The result is not only a more profitable firm — but one in which people can sustain high performance without burning out.
3. Servicing Cost Per Dollar of Commission
One could call this “margin discipline in action.” The ratio reveals how much it costs a firm to deliver the commission and fee revenue it earns. Here, lower is better. When servicing-cost grows faster than revenue — even modestly — profit erosion accelerates. Top-performing firms are lowering this ratio through:
- Workflow automation (scorecards, process mapping, ticketing systems).
- Tech-enabled client service models.
- Operational restructuring that eliminates low-value manual work.
- Margin visibility at the account level.
Historically, Connect member firms delivered lower servicing cost ratios than peers — reflecting more efficient operating models and better cost control. Firms like Hardenbergh Insurance have invested in technologies to create scorecards on profitability metrics and staff efficiencies that are reviewed on a regular basis, which creates more marginal awareness and discipline.
One simple question every firm should ask: Do our service teams know which accounts are profitable — and which aren’t?
Why these ratios matter
Profitability is not accidental. It’s intentional, and it’s manufactured through ongoing measurement and improvement of the right factors. In the end, profit shouldn’t be a mystery. Successful leaders:
- Benchmark their firm’s performance.
- Track trends year-over-year.
- Compare against market and peer data.
- Act on what the numbers reveal.
Leaders looking to foster stronger cash flow, higher valuations, and more resilient growth, can start by focusing their attention on these three profitability ratios. No one can manage what they don’t measure, and with all the data that’s now available, no one should settle for blind performance. But leaders need to know where to look and what to look for, only then can they determine what the numbers mean — and what to do to improve them.
Are you ready to Connect?
You can learn even more about how to take advantage of CPIs by becoming a MarshBerry Connect member. Connect members gain access to exclusive market intelligence as well as an invaluable peer-to-peer exchange network. To learn more about becoming a MarshBerry Connect member, click here.
