Having worked with several home care businesses over the last three years or so, it has become apparent to me that home care is now at a tipping point. I fear many home care businesses will struggle to survive if they do not do something now to change the model they currently have.
Where are we now?
The model I know works, both in terms of delivering a great service and also a profitable business, is focusing on the private client market. However, transitioning from socially funded clients to private clients is a significant change management process. This doesn’t happen over night. Some clients I work with cannot make the transition in full because they are fearful of not having council work as a back up. Their main concern is often around covering costs and ensuring they have enough work for their care employees. Unfortunately that model is no longer viable. According to UKHCA the minimum hourly rate that provides a viable net profit is £21.43. Many councils are not paying anywhere near that amount.
Unfortunately I am getting a real sense of deja vu.
This is exactly what happened in financial services pre 2012.
What happened in financial services?
Pre 2012 many financial advisers were making a profit on only 20% of their clients and losing money on 80%. I am not saying cross subsidy is necessarily wrong, but I am saying losing money on 80% is. At the time, financial advisers were paid through commission. Often they had many hundreds of clients and receiving pennies for the work they did via commission payments. For example, a client would have an annual review costing £1500 per annum but the advisory firm would only be paid £125 if the client had a £50,000 portfolio. Scary I know but the financial advisers didn’t know which clients they were making a profit or loss on.
Additionally, the whole sector went through a consolidation period, where many sold their businesses to bigger companies. Many were left without access to financial advice because they were no longer viable clients. Is this starting to sound familiar?
The businesses who went through the transition process which we implemented, understood the profitability of each client. We developed a process where each business created client propositions that were appropriate for a range of clients based on their ideal client, affordability and accessibility. Where they needed to reduce cost they used technology to drive efficiencies. The methods I use with my home care clients are the same as I did with financial services businesses. It works. The difference between home care and financial services is that financial services were forced to make the change because it was a regulatory requirement.
Why is it relevant to home care?
All of the above is exactly what is happening now in home care. If home care business do not go through a similar process that financial services went through, then it will be hard for them to survive. If a significant number of home care businesses do not survive then there will be a shortfall of accessible care. With the UK’s growing ageing population this will be catastrophic, and the UK will be in big trouble. It would put even more pressure on the unpaid carers. Unpaid carers are already propping up the care system, we cannot put even more of a burden on them. This concerns me greatly.
The tipping point in home care is happening now
What I am beginning to see happen is consolidation, as mentioned above, this is what happened in financial services. My clients tell me they are being approached by larger care businesses. They target care businesses that are stressed, financially and emotionally. The strategy of some larger care businesses appears to be to work with local authorities who are focused on task-based care and not person-centred care. This is a concern as it does not result in standards being raised. Their business model tends to be ‘volume and price’ instead of ‘quality and niche’. Again, this is what happened in financial services. Financial advisers who did not/could not make the transition because it was too hard, sold their businesses.
So what future is there for home care businesses?
If you have a strategy to attract private clients then you will be more profitable, more sustainable, have happier clients and happier employees. By providing information to clients so they are aware they can pay via direct payments/personal budgets will be needed. Sourcing clients via local networking rather than via social services is proven model that works for the top home care providers. A marketing strategy to support this will be key.
I hope that the tipping point will sway in the right direction toward home care businesses and many are able to adapt and change, for the good of the UK. Perhaps a transition program to support home care businesses through this would be useful? I have one ready to go and watch this space.
However, in the meantime, there is some pointers below.
As a home care business go through the process of segmenting your client base according to profit and relationship as per below. The main challenge I encounter is the C clients. Often businesses put these down as A’s but they are invariably not as profitable as they think they are.
By understanding your client profitability you will at least know where you are now.
Once you have gone through the segmentation process you need to design client propositions for A’s, B’s and C’s. I see assistive technology being a key area, particularly for C clients. This costs less and can fulfil some care needs. If you want more information on how assistive technology can help your care business then contact me on 01492 550401.
There is lots more on attracting private clients particularly around client propositions and marketing here.
There is so much you can do in terms of providing information around the care journey and funding. Potential private clients, need to know what their care journey is going to be like and what funding is available. This is critical and yet I see many home care businesses do not provide this information and guidance. You can provide links from your website to a number of online resources.
I hope the home care sector survives and thrives but it is going to take time. If you would like to hear more, book in for 30 minutes for free with me on how to approach this here.