Revenue Multiples vs EBITDA Multiples: Which One Tells the Truth

Two insurance agencies, both doing $10 million in annual revenue. Using a revenue multiple approach, they look identical. Using an EBITDA approach, one is worth twice the other.

This isn't a hypothetical. It's the reality of how wildly different two agencies can be beneath the same top-line number.

The Revenue Multiple Problem

Revenue multiples are simple: take your annual revenue, multiply by some number — typically 1.5 to 2.5 times for insurance agencies. The appeal is obvious. Revenue is easy to verify, hard to manipulate, and gives you a quick number to work with. (Independent market data puts the typical revenue multiple range at 1.82x to 2.33x for insurance agencies. [1])

The limitation is that revenue alone doesn't reflect profitability. An agency with $10 million in revenue and a 15 percent EBITDA margin is producing $1.5 million in annual earnings. The same revenue at a 30 percent margin produces $3 million. Double the earnings, same revenue. Under a revenue multiple, they're worth the same. Under any rational economic analysis, they're not even close.

Revenue multiples persist for captive books and smaller agencies because the transaction structure is simpler and buyer pools are more constrained. When you're selling a $200,000 captive book to a carrier-approved buyer, the revenue multiple is a practical approach for a straightforward transaction. See our captive book vs independent agency value breakdown for why the valuation method itself reflects structural differences.

The EBITDA Multiple Reality

EBITDA multiples measure what the business actually earns. Acquirers with institutional capital — PE firms, strategic buyers, well-capitalized independents — generally use EBITDA because they're buying cash flow, not revenue.

Take those two $10 million agencies. Agency A runs at a 15 percent margin: $1.5 million EBITDA. At a 7x multiple, it's valued at $10.5 million. Agency B runs at 30 percent: $3 million EBITDA. At the same 7x, it's worth $21 million. But Agency B probably commands 8x because higher margins signal operational excellence, which means $24 million. (EBITDA multiples in the 7x–8x range are consistent with reported transaction data for independent agencies: Insurance Journal's market analysis documents EBITDA multiples in this range for well-positioned mid-market agencies [2], and Sica Fletcher's valuation benchmarks confirm the 7x–8x corridor for agencies with strong margin profiles. [3])

The difference between a 15 percent margin and a 30 percent margin on $10 million in revenue is $13.5 million in enterprise value. Same revenue. Same industry. Same geographic market. $13.5 million apart.

When Revenue Multiples Make Sense

Revenue multiples aren't useless. They're useful for smaller agencies — particularly those under $500,000 in revenue — where EBITDA normalization gets complicated. When the owner is the primary producer and the business is essentially a high-paying job, SDE or revenue-based approaches can be more practical.

Revenue multiples also work as a quick screening tool. If someone tells you their agency does $2 million in revenue, you can mentally bracket the value between $3 million and $6 million as a starting point. But the real number depends on what's happening below the top line.

The Normalization Trap

One reason agency owners overvalue their businesses is that they confuse revenue with earnings. An agent doing $500,000 in revenue and paying themselves $200,000 might think the agency is "making $200,000 a year." But that $200,000 is owner compensation, not business earnings. Once you normalize owner comp to market rate — what you'd have to pay someone to replace yourself — the actual EBITDA might be $75,000 or less.

Sophisticated buyers typically normalize your compensation, add back discretionary expenses, adjust for one-time items, and arrive at a true earnings figure. If you haven't done this exercise yourself, you're negotiating blind. Read our agency valuation mistakes roundup for the errors that most commonly trip owners up during this exercise.

Which Multiple Applies to You

If you're captive, you'll typically be valued on revenue multiples. The range is narrower, the buyer pool is more restricted, and the carrier controls many of the transaction terms. The valuation methodology reflects the structural characteristics of captive agency transactions.

If you're independent, you should be pushing every conversation toward EBITDA multiples. That's where the leverage is. Every dollar of margin improvement, every percentage point of retention, every year of organic growth pushes your multiple higher and your multiple base larger. It's compounding enterprise value creation, and which is structurally different in a captive model.

The question isn't which method is "correct." Both measure real things. The question is which method creates more wealth for the owner, and on that count, EBITDA-based valuations for well-run independent agencies consistently produce higher sale prices than comparable revenue-based captive valuations, as documented by MarshBerry and Sica Fletcher.

Revenue tells the story of how much business flows through your office. EBITDA tells the story of how much of it you keep. Buyers want the second story.

Frequently Asked Questions

Q: What multiple should I use — revenue or EBITDA?

A: If your EBITDA margin is 25%+ and your books are clean, push for EBITDA because it rewards profitability. If you're sub-$500K revenue, captive, or your financials need normalization, revenue multiples are often more favorable. Your structure usually dictates the method.

Q: Do buyers use SDE or EBITDA for small agencies?

A: Sub-$1M revenue owner-operated agencies typically use SDE (adds owner comp back). Mid-market independents and PE deals use EBITDA with normalized owner comp. Ask every buyer which method they're using — the same agency can look very different under each.

Q: Do agencies really sell for 8-12x EBITDA?

A: Only platform-quality agencies with strong margins, growth, and $2M+ EBITDA. Sub-$2M EBITDA agencies more commonly transact at 6x-10x, and 12.5x-14.5x is reserved for $5M+ EBITDA platforms.

Q: Why did my agency come in lower than I expected?

A: Often it's the method. A $10M agency at 15% EBITDA margin values at roughly $10.5M on a 7x EBITDA basis — the same revenue at 30% margin generates $3M EBITDA and values near $24M. Same revenue, very different enterprise value.

Q: Is 2x revenue a fair price for my book?

A: 2x is near the top of the revenue-multiple range and needs to be earned — 90%+ retention, commercial-heavy or specialty book, transferable appointments. For high-margin independents, an EBITDA-based offer often beats 2x revenue anyway. See insurance agency revenue multiples 2026.

Sources & References

1. Peak Business Valuation — Valuation Multiples for an Insurance Agency
2. Insurance Journal — EBITDA Multiples and Insurance Agency M&A (June 2024)
3. Sica Fletcher — Insurance Agency Valuation Rule of Thumb
4. MarshBerry — How to Think About Value