TPA Profit Margin

[Guest LLHarlow]

I am interested in determining a reasonable expectation of an attainable net (pre tax) profit margin for a non producing third party administration firm with fewer than 500 clients. The firm is in Ohio with clients primarily in Ohio and neighboring states. For example, on revenue of $500,000, is it reasonable to expect 10%, 15% or 25% after all expenses including salaries (EBITDA) ?

[shERPA]

Can't really compare profit margins without defining owners' compensation and benefits/perks. Need to assign some "reasonable" value for this based on the work the owners do as employees. Once you do this, then 20% should be a minimum target. If not at least this much, why take on the headaches and the risk?

[WDIK]

Please explain this word "profit". It is unfamiliar to me.

[Guest LLHarlow]

I need to determine a rate of return as though owners are not employees. My principals, who are not involved in the daily operation of the organization, are setting a budget based (I believe) on an unreasonable profit goal. I believe our business has a rather skinny margin but I want to poll other managers and owners for opinions.

[rcline46]

Look to profit margins on other service industry models. In general, the ROI is very low in all service industries.