Is the Home Care Business Profitable in the UK?

Is Domiciliary care profitable?

Domiciliary care can be profitable but rising staff costs and utility bills pose a challenge. Privately funded providers can benefit from increasing their prices in response to increased demand. Publicly funded providers are constrained by limited local authority budgets.

The revenue in the UK sector is expected to increase at a compound annual rate of 1.9% for the next five years.

As people live longer due to medical advancements, they will require more lengthy and more complex care. The aging population will cause a shift in the services most in demand. Key growth areas will be mobility assistance, personal care, memory care, and cognitive care.

Domiciliary care providers who can offer high care standards will benefit most from the surge in demand. They will be highly sought after by more affluent customers who are discerning in their choice of care provider and are prepared to pay for quality.

With the freedom to set its own prices in response to rising demand, the private care sector has great potential to increase profitability. However, the public care sector continues to be underfunded, putting a damper on profitability.

Domiciliary care profit margin (UK)

The domiciliary care profit margin in the UK varies greatly according to the provider and the nature of the local market. The Hidden Dynamics of Homecare report published in 2019 shows the national average margin before operating costs (MBOC) is 15%, or £2.51 per hour of care.

The report found significant regional variance with the South West reporting the highest MBOC of 20% and the North East and West Midlands each reporting the lowest MBOCs of 11%. MBOC does not include additional costs such as care coordinator pay, rents, and recruitment training.

How to increase domiciliary care profits

The most effective way to increase domiciliary care profits is to eliminate operational inefficiencies. This will reduce operating expenses thus increasing profit margins. The money and time saved can be reinvested back into the business to fuel scalable growth.

One sign of operational efficiencies is people spending excessive time on ‘non-value-added tasks.’ These are tasks that do not contribute to the value of the service being offered, such as routine and repetitive admin duties.  In a study carried out in 2019 , one quarter of care managers reported spending one quarter of their working hours on non-value-added tasks.

Home care management software can help to reduce the administrative tasks for domiciliary care to lower costs and increase profit margins. The benefits include:

• Fast access to service users’ records: All the information that carers need about service users is easily accessible via an app, including care plans, eMAR, and detailed visit records. This produces significant time-savings, allowing carers to accomplish more on the same schedule.
• Easy management of rotas: Rotas can be drawn up based on demand for services and employee availability. Carers can be matched to service users based on geographical proximity, and comparing carer skills to user needs.
• Efficient distribution of travel expenses: Automation can track travel distances and times to ensure carers receive the correct reimbursement for travel expenses. This allows for accurate forecasting of cashflow and better costs control.
• Online training and development: Online courses that are available at any time and any location can upskill carers to enhance their skillset and productivity. Teaching carers to do their jobs more effectively and efficiently will produce cost savings.
• Improved staff retention: Employee engagement programs facilitate reward and recognition initiatives and nurture an inclusive and supportive work culture. This improves staff retention and reduces recruitment costs.

Are home care agencies profitable?

Home care agencies can be profitable, especially those serving the privately-funded market. Home care providers who serve the publicly-funded market are more likely to be on slim profit margins making them vulnerable to sudden cost increases. There is also significant regional variance in profitability across the UK.

Despite the undeniable challenges the overall outlook for the sector is positive. Flexible healthcare staffing and home care services in the UK are worth over £12 billion per year and rising. The care business is non-seasonal, which means cash flow is steady and financial planning is easy. In addition, because home care is an essential service, it is recession-proof.

Regional variations

A Care Management Matters Report from 2017 showed that the South West was the most profitable region with providers making average annual pre-tax profits of £33,000. The next most profitable region was London with £29,000 per annum. Although most regions showed providers making an annual profit, two regions showed average annual losses: Scotland with -£15,000 and the South East with -£8,000.

Key drivers behind these regional differences are: Firstly, the proportion of elderly people that can, or would prefer to, fund their own care. Secondly, the difference between the funding local authorities can allocate to social care and the local demand for care.

Challenges to profitability

In a recent report on home care in the UK, carried out by IBIS in July 2023, the sector was found to have performed “fairly strongly” overall.

However, the report identified two major challenges:

• Underfunding from the public sector is having a negative impact on profits.
• Rising staff wages not only cut into profits but make it harder to recruit and retain workers.

These challenges have taken a heavy toll on the profitability of some providers. In 2021 the National Audit Office (NAO) found that 48% of for-profit large home care providers reported EBITDAR (earnings before interest, taxes, depreciation, amortization and rent) of 5% or less, while 80% of not-for-profit large home care providers reported EBITDAR of 5% or less.

At 2021 roundtable hosted by the Local Government Association, a provider described average home care profit levels at around 2-2.25%, corroborating the above figures from the NAO.

Industry trends

Increasing life expectancy means that by 2024 the over-65 age group will comprise more than 20% of the population.  There will be more over-65-year-olds than under-15-year-olds. More people will suffer from age-related conditions requiring daily help.

Dementia rates are soaring, with the number of people with dementia in the UK set to exceed one million by 2025. In the UK, dementia is the number one cause of disability in later life, more than cancer, cardiovascular disease, and strokes. Dementia sufferers often continue to live at home and, even if they have support from loved ones, will still need additional specialist care.

Government policy focuses on promoting independent living and encouraging people to be cared for in their own home. In some cases, care can be provided by family members living locally. But in many cases, this will mean turning to home care agencies for support.

Due to the combination of all the above factors, demand for care is surging and the public sector cannot keep up. This is bringing a continuous influx of new clients to the private home care sector, which should bolster home care profitability for private providers.

Home care agency profit margin (UK)

Home care agency profit margins in the UK can reach 22% to 24% net when it comes to private franchises. The average gross home care profit margin in the UK for private franchises hovers at around 36.5%. Home care franchise profit margins compare favourably to franchises in other industries.

New home care franchisee owners have to pay a franchise fee and fund the initial investment. The franchisor will often have pre-established relationships with lenders which means that franchisees will benefit from substantially lower interest rates. This means that starting a home care franchise involves much lower investment costs compared to starting an independent home care agency. Lower investment costs will give rise to higher initial profit margins.

How to increase home care business profits

Home care business profits can be increased by increasing revenue and/or reducing operating costs, ideally both at the same time.

Increasing home care revenue

Increasing revenue in home care can be difficult as the majority (around 70%) of home care is state funded and limited to what local authorities (whose own budgets have been cut since 2008) are able to afford to pay. This means the fees paid to home care providers are often inadequate to cover their operating costs.

Therefore, some home care providers have sought to increase the proportion of their client base that is ‘self-funded’ (rather than state funded), because they can charge those people a more realistic rate that covers their operating costs.

Why aren’t all home care agencies pivoting to self-funders?

Given that 70% of home care is state funded, privately, or ‘self-funded’, home care is a limited and highly competitive market. Also, privately funded care is only feasible in certain locations (for example with higher numbers of older people or families with more disposable income) and requires much more home care marketing investment.

Whether care providers deliver more or less privately funded care, they can still find marginal efficiency improvements, to reduce operating costs and increase profitability.

Key operational costs for home care agencies

The Homecare Association recently published a comprehensive list of operating costs for home care agencies for 2023-2024. The costs have been subject to recent inflationary increases particularly in wages, rents, rates and utilities. The greatest factor in the increased costs of care is the national legal minimum wage rising by 9.7% to £10.42 per hour from April 2023.

The operating costs per hour of home care comes to £25.95, broken down as follows:

• Careworker costs: £17.97
• Management & supervisors: £2.45
• Back-office staff: £1.22
• Staff recruitment: £0.36
• Training costs: £0.48
• Regulatory fees: £0.09
• Rent, rates and utilities: £0.37
• IT & telephony: £0.47
• PPE and consumables: £0.59
• Finance, legal & professional: £0.31
• Insurance: £0.31
• Other business overheads: £0.34
• Profit/surplus/investment: £1.00
  
  

How technology can increase home care profits

Software technology can create efficiencies, reduce costs, and increase profits in home care agencies. Although there are many software solutions on the market, it is important to find the right ones that offer the appropriate functionality to match the needs of the business.

Premier Community is an award-winning home care agency who started in 1996 with a team of 30 carers. They have since expanded to 300 carers and now manage multiple locations in the East Midlands.

Premier Community use Access’s home care software to enhance their productivity while keeping costs low. This allows them to operate much more sustainably and grow their home care business.

“If we’re looking at our growth and our history, we’d say that for every 500 hours of care that we’ve grown, we’ve saved on recruiting two or three additional staff to make sure our processes stay consistent. So that’s £40,000 saved every time we grow 500 hours because Access’ software is so effective.”

Dan Isterling, Managing Director at Premier Community

Challenges

Before using Access’s home care software, Premier Community was facing the following challenges:

• Staff rotas were managed on Excel and timesheets were printed on paper. Carers were rushing to complete their timesheets in time for payroll. Everything was “a bit chaotic.”
• Staff were spending a huge amount of time managing care plans. “We’d have to type out our care plans, print them out, and deliver them to a service user. Within 72 hours that care plan would change, and we’d have to do it all over again.”
• Managers were “spending their time preparing data rather than on delivering care.”
• The organisation was fragmented. “It was hard to communicate and hard to get our culture right.”
• Recruiting qualified candidates was tough and they were “competing with many different employers.”
  
  

Outcomes

Premier Community tried various software solutions before settling on Access’ home care software. Access’ software allowed Premier to achieve the following:

• Monitor all aspects of their operations, from staff rostering to care planning, via multiple dashboards displayed on one screen, thus reducing admin costs.
• Drill down into different data silos to drive greater efficiencies through more effective decision making.
• Manage new people and new services seamlessly without increasing the administrative burden.
• Discover areas where there is capacity to take on new clients.
• Track what individual service users require for each visit, so carers come fully prepared, ensuring that there are no wasted visits.
• Allow staff to access earned pay early, increasing staff retention and decreasing recruitment expenditure.
• Automatically screen applicants, saving on recruitment time and costs.

With Access’s care management software, Premier Community were able to improve their operational efficiencies, and hence increase their business profits. This has enabled them to grow in a scalable way while taking care of their bottom line.

A comprehensive home care management solution

Knowing how to become and stay profitable is a vital part of running a successful home care business. 

Access’ home care management software is the most widely used domiciliary care system in the UK. With a fully featured suite of apps, it will empower you to deliver outstanding care while making your operations more efficient, more cost-effective, and more profitable.

To find out about the home care software we offer at Access, contact us here to discuss your needs or book a demo.