April 24, 2023
Adam Hoeksema
The IRS publishes tax return data each year on the roughly 28,000,000 sole proprietorships in the U.S. We analyzed the 304,555 tax returns that were filed in the insurance industry to pull out some key statistics and insights to help our customers ensure that they are creating realistic financial projections for their insurance agency.
We hope that this data will be helpful for you as a “reality check” for your financial projections and insurance agency business planning process. We hope you create a forecast for your unique situation and plan, and then use this data to make sure your projections seem reasonable based on industry averages.
Here is what we will cover in this article:
Learn How to Use this Financial Data
If you are creating projections for your startup business, or you just want to see how your existing business stacks up to industry averages, you can take your income statement and compare key ratios and percentages for your business compared to this industry average data.
How many insurance agency businesses in the US are sole proprietorships
There are roughly 300,000 insurance agency businesses in the US organized as sole proprietorships. We specifically analyzed 304,555 insurance agency companies based on the 2019 IRS tax return data.
Average annual revenue for an insurance agency
The average annual revenue for all sole proprietorship insurance agency businesses in the U.S. was just $88,868.
This may differ depending on the size, location, and time in business for each insurance agency. In our blog post How to Start an Insurance Agency we found that the majority of insurance agencies’ revenue is below $500,000.
So what gives?
I think we need to remember that this tax return data includes all sole proprietors that categorize themselves in the “insurance agency”. Depending on location and size the potential revenue may vary.
This underscores the importance of actually creating your own insurance agency projections based on your potential inventory and customers.
Average annual expenses for an insurance agency
The average annual expenses for all sole proprietorship insurance agency businesses in the U.S. was $58,261.
The average annual expenses for an insurance agency will be made up of the rent, legal fees, and advertising, but these all could vary depending on location and age of the business, so again let’s not focus too much on the specific dollar amounts here. What we can gain from this tax return data is an understanding of expenses and profits as a percentage of revenue rather than a specific dollar amount.
Average net profit margin for a insurance agency business
The average net profit margin for an insurance agency business was 34%.
How much can I make by owning an insurance agency business?
In order to calculate the earnings potential of a insurance agency you can take the following assumptions:
- # of active customers
- Annual premium per customer
- % commission earned by the agency
These assumptions will allow you to come up with a revenue forecast for your insurance agency. From there you can apply the 34% profit margin.
Top 9 expenses for a insurance agency business
Based on the tax returns of roughly 304,555 sole proprietors operating in the insurance agency industry, the following were the 9 largest business expenses as a percentage of revenue.
Average other business expenses for an insurance agency business
The average insurance agency business spent 16% of annual revenue on other business expenses.
This is somewhat of a catch all for different types of expenses within an administrative business. This can be related to different types of fees, licenses or memberships as well as different kinds of administrative expenses that do not fall into office expenses.
Average salary and labor expense for an insurance agency
The average sole proprietor insurance agency business spent roughly 11% of annual revenue on Salaries and Wages.
Depending on the size of the agency, there may be multiple agents or sales reps working to help grow the business. This also relates to the 7% of Sales Commissions that is the third highest expense.
Average car and truck expense for an insurance agency
The average sole proprietor insurance agency spent roughly 6% of annual revenue on rent.
This is a bit surprising to be this large of a percentage, but given the need to often travel to meet clients and grow the business and service the customers, it makes sense.
Average rent expense for an insurance agency
The average insurance agency spent roughly 3% of annual revenue on rent paid.
Important Details about the Data
I want to point out a few key items about the data:
- You can download this data for free from the IRS website.
- The data includes 304,555 insurance agency sole proprietorships in the U.S. in 2019.
- This data will include businesses that operate full time, and businesses that only operate on a part time basis.
- Because of this, you should take the raw numbers for revenue, expenses and profit with a grain of salt, but the percentages can still be quite valuable when trying to forecast expenses for your business.
- This data includes businesses from all across the country, keep in mind that revenue and expenses can vary greatly based on your specific geographic location.
- We used 2019 data because we felt it was most likely to be representative of a “normal” environment for the industry. COVID-19 caused disruption to almost every business in 2020 and 2021, so we wanted to utilize “normalized” data.
If you have any questions about the data or how to utilize the data in your financial forecasting process please don’t hesitate to reach out to us!
