Average Profit Margin of a Non-Medical Home Care Business

According to industry reports, the average profit margin for non-medical home care businesses are around 30 and 40%.

But these will surely vary and also depend on certain factors, like the services you are providing, your hourly rate of care, and also your business expenses. However, most non-medical home care agencies charge between $16 and $19 for companion care services and $18 and $22 for personal care services that require touching, like bathing.

The cost of your companion care and personal care services will vary depending on where you are located. In the United States, small towns and rural areas where living costs are lower will surely cost less, while in big cities where living costs are high, the cost will be on the high side.

Howbeit, the national average is $27 per hour, which works out to $54,000 a year with a 40 hour work week. However, if your non-medical home care agency is acquiring a new client at 20 hours per week and your client is paying $18 per hour while you offer your employee $9, then your non-medical home care agency is profiting $9 per hour.

But if you are paying your employee $9 per hour and your home care agency is charging the client $22 per hour, your non-medical home care agency will profit $13 per hour.

While it is imperative to be competitive, the minimum profit for your non-medical home care agency for this 1 client would be $720 per month. And if you just have 10 clients you are attending to their needs for 20 hours per week, then your non-medical home care agency would profit $7,200 at minimum per month.

However, note that this number can be quite higher as you market your business and grow your brand. 20 of these clients would profit $14,400 per month.

As a non-medical home care agency, it is recommended that you see your home care agency as a staffing agency. For each hour you bill out, you are earning a certain amount of dollars. So the more you bill out, the more income you generate, and the more your profit margins.

It is also necessary that you know your operating costs and revenue numbers. Once you have determined those, you can use any spreadsheet for any future negotiations that may arise.

Nevertheless, do not be nickel and dimed on every case. Ensure to stick to your posted prices for most cases and then offer better care. Note that with better care, your satisfied customers will become a ‘word of mouth’ advertising machine for you.

Although there was a time when 50 percent profit margins in the non-medical home care market were normal, but today with overtime and increased competition, a 30 to 40 percent margin is what is obtainable in the United States.

Factors That Influence the Average Profit Margin of a Non-Medical Home Care Business

Just like it was noted above, certain factors will influence the amount of income you generate, and also ultimately influence your average profit margin. These factors include;

1. Revenue Per Customer (RPC)

According to experts, this is one business performance metric you should closely track. To run a successful non-medical home care business and also generate good profits, you must aim for a higher than average RPC, which can be driven by client satisfaction.

Note that high client satisfaction can exhibit itself in a high RPC when your customers are willing to pay you more than the industry average for your non-medical services, or they choose more of your services, being satisfied with the existing ones.

Have it in mind that the average revenue per customer for non-medical home care businesses is somewhere around $2500 – $3500, depending on the responsibilities of the caregiver. However, if you reach your target RPC and a predetermined number of customers, only then can you look to expand your business beyond your stronghold area.

2. Taxes

Have it in mind that the percentage of taxes you pay depends on the tax bracket your net income falls under and on the state in which you run your business. Every state has a taxation system and relevant tax rates that can all influence the amount of profit you take home.

After-tax, the ballpark margin that you should be making in your non-medical home care business is approximately 20 percent. Although this is an approximate number, immediately you achieve this margin, you can further leverage your operating scale to expand your margins. As an owner, you are free to pay yourself a dividend from the proceeds of the business.

3. Staff Cost

Staff costs will take up about 60 – 65 percent of your revenue and will also make up the largest cost bucket for you. Caregiving staff, without doubt, is the only raw material in your business. Owing to that, the gross margin for your business should be in the range of 35 – 40 percent.

Although you may lose money or obtain a lower margin initially due to permanent employees on your payroll and low business volumes, this is the guided margin percentage that your business should strive to achieve on the steady state.

4. Rental Cost

Even though this can be avoidable in the earlier days of your business, rental costs should not be more than 2 percent of your revenue. It is recommended that you opt for a low-key office set up, which is conveniently accessible by most of your staff.

5. Marketing and Business Promotion Cost

In this line of business, marketing expenses including e-mail marketing and software for your healthcare business should constitute the second major cost item, depending on the marketing campaigns that your business leverages – but it should be no more than 4 – 5 percent of your revenues.

With time, you might be able to note the more effective channels of marketing and then should be able to optimize marketing costs to about 3 percent of your revenue. In addition, your marketing revenues are also expected to come down gradually, as you will consciously grow your brand in your local area and generate leads automatically through word of mouth.

6. Franchise Fee

For non-medical home care agencies that are part of a franchise, you are expected to pay the franchise fee, notably, 2 – 3 percent of your revenue. Although this may look high, it will offer you the needed training and may also generate leads for you through the overall brand-building exercises.

7. Interest on Loan

If, for instance, you are funding fifty percent of your initial start-up cost through bank debt, your interest cost in the steady-state should be around 4 – 5 percent of your revenue. It is explicitly clear that the lesser the loan, the higher your margins. Owing to that, a lower debt percentage will also reduce your return on equity or the return on your own contribution.

8. Miscellaneous Costs

In your business as a non-medical home care agency, miscellaneous expenses include indirect costs that are acquired to ensure that your company keeps running and exigency covers like insurance.

These expenses may include accounting and legal expenses, utilities like electricity, telephone, heating, and the internet, website maintenance costs, and out-of-pocket repair costs. All these costs combined should not exceed 1 – 2 percent of your revenues.

Conclusion

Have it in mind that the profitability of your non-medical home care business will depend on how efficiently you can scale your operations and how closely you can control your costs. However, note that it can be counterproductive to control costs too much – they either lead to employee dissatisfaction or customer dissatisfaction.