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Grow Your Home Care Company with “The 80th Percentile Principle”

By Stephen Tweed 

Several weeks ago, I wrote to you about the “Perfect Storm” in caregiver recruiting.  Applications have slowed to a trickle because unemployed caregivers are making more staying home than working.

This has led me to do more research on what I call “The 80th Percentile Principle.”  This principle says that you can grow your home care business by positioning your company at the 80th percentile in your local marketplace for both billing clients and paying caregivers.

To apply this principle, you need to do the following:

  • Mystery shop your local marketplace to benchmark bill rates and pay rates.
  • Adjust your pricing to move toward the 80th 
  • Adjust pay rates and recruiting to move toward the 80th
  • Enhance the values of your services to justify the premium pricing.
Adding Value to earn Premium Bill Rates

What can you do to justify premium pricing in home care?

Many owners tell me they can’t charge more than their competitors because home care clients and their families are so price conscious.  Actually, we have found that home care companies that position themselves as premium providers can charge higher prices than the average company in their local market.  Here are some ways to earn higher bill rates:

  • Create an Exceptional Customer Experience – companies that understand their clients and their client’s expectations can create an exceptional customer experience that warrants a higher hourly rate.  This may include a higher level of reliability, and higher continuity of care, and more frequent communication by care managers and company leaders.
  • Target High Net Worth Clients – several of our mastermind members have built businesses that cater to the needs of higher net worth clients.  They focus their marketing efforts on referral sources who have access to these high net worth families.  We have found that high net worth individuals often association higher prices in products and services with superior quality.  These are the folks who live in large homes and drive luxury automobiles.
  • Provide Disease Specific Programs – many home care companies are focused on providing specialized services to clients and families dealing with specific diseases such as Alzheimer’s, Parkinson’s, or chronic conditions such as Congestive Heart Failure, COPD, or Diabetes.  The specialized training of caregivers to provide care for the clients with these diseases brings added value, and therefore added price.
Using your Increased Revenue to Pay Caregivers

As you increase your bill rate toward The 80th Percentile, your  Gross Margin will grow.  The 2021 Home Care Benchmarking Study from Home Care Pulse shows that the median Gross Margin for the Leader Companies (0ver $2.8 Million in annual revenue) was 39.3%.  By growing your revenue, you can increase your Direct Cost of Care by paying your caregivers more and still maintaining reasonable Gross Margin.

Other data from Home Care Pulse shows that companies that pay over the 75th percentile have a median turnover of 49.3% while companies that pay at the 25th percentile or less have median turnover of 75.1%.  While we have said numerous times that “Money Matters More in Recruiting Than Retention,” we are seeing that companies that charge more and pay more have systems in place that enable them to recruit and retain more caregivers.

Have These Discussion with Other Owners

During our Home Care CEO Mastermind meetings, we regularly have discussions like this were we talk about bill rates, pay rates, turnover, retention, and gross margin.  If you would like to engage in regular conversations with other owners of similar sized home care companies that do not compete in your local market, consider becoming a member of a Home Care CEO Mastermind Group.

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