It’s always a good time to be analyzing key metrics to understand which areas of your business are performing well, and which areas need attention and improvement.
But when it comes to evaluating your performance, there are so many things to think about and you only have so much time and manpower, so where do you really focus your analysis efforts?
Six Key Home Care Business Metrics to Monitor
While there are many business metrics you could look at, to be the most effective when reviewing your business performance we recommend focusing in on the following six key performance indicators (KPIs):
- Monthly Revenue
- Monthly Expenses
- Profit Margin
- Top Referral Sources
- Conversion Rate
We’ve chosen this particular set of KPIs because we believe they are the most critical to understanding the overall health of your business. We believe that monitoring these metrics on a regular basis, and then acting upon the findings, will put you in control of your business so you can focus your efforts appropriately and achieve the results you want. As you are able to, including additional KPIs in your evaluation will be helpful to futher understand the big picture surrounding your agency’s business performance, but for now, let’s focus on these key indicators.
Key Performance Indicators for Your Home Care Business – A Quick Review
When it comes to analyzing your business performance, we believe the following KPIs are the most important starting point because they build a foundation of data that can be used for goal setting and future planning for the growth of your home care agency.
KPI #1: Revenue
Simply put, revenue is money that comes into your business from paying customers. Think of it like money coming in the door. Revenue can be looked at from a monthly or yearly standpoint. Monthly, for instance, is important for cashflow purposes, while yearly revenue can be important for determining things like whether your are paying yourself, your caregivers and your staff adequately. Understanding the relationship of revenue to monthly expenses, profit, and your profit margins is essential to the KPI picture. Keep reading.
KPI #2: Monthly Expenses
Monthly expenses include all expenditures that your business incurs each month. The analogy is that it’s money going out the door. These expenses can include things like payroll, rent, technologies to help run your business, marketing costs, taxes, and more.
KPI #3: Profit
Generally speaking, profit is the amount left over once you subtract expenses from revenue. If you are a newer agency just starting out, you may not see profit for awhile as you ramp up salaries to meet market rates. (It is important to be aware of market rates for your staff positions if you want to hire and retain quality employees.)
For example, here is the tale of Happy Home Care, and imaginary home care agency. Happy Home Care agency is charging $20 per hour for their services and paying their caregivers $10 per hour. They average 20 clients at any given time. These clients require an average of 15 hours per week of private pay services. Over the course of a year, the agency’s revenue amounts to $288,000. Half of that amount will go straight to the caregiver payroll. The agency’s other expenditures for the year will then be subtracted from the remaining revenue dollars and what is leftover is the agency’s profit.
KPI #4: Profit Margins
Profit margin is a metric that reflects the percentage of revenue that your agency’s profit represents. For example, the yearly payroll at Happy Home Care for their caregivers is $144,000 and their remaining expenses (rent, marketing costs, etc.) equal $141,120. By doing the math, we find that the profit is $2,880, which then makes the profit margin 1% of their total revenue.
Profit margins should be considered before taking on certain clients if you suspect that your agency could actually lose money in some care scenarios. To help determine what your profit margin may be for a given client, see this spreadsheet which offers valuable calculation tools for this purpose.
For start ups, understanding these principles around profit margins is fundamental to understanding how to grow your business. You won’t be profitable at first unless you already have a steady and sure payer source in the wing. If this is true for you, you are in the minority. Hold onto your hat. You are in for an exciting ride.
If you are like most, though, you will have to build up your reputation with your clients, payer sources, referrals, and caregivers. So have some cash reserves until you get your footing. This could take many months.
KPI #5: Top Referral Sources
Your top referral sources are valuable resources that need ongoing attention. A large part of your marketing dollars should be used to nurture them so they will continue to send referrals your way. Tracking your referral sources will also illuminate which marketing efforts are not working so you don’t waste marketing dollars.
KPI #6: Conversion Rates
The last KPI, conversion rate, is often overlooked. This refers to the ability to convert a prospective client into a paying client. It’s overlooked for many reasons, but whatever the excuse, it needs to be monitored. Analyzing this metric will help you to answer a variety of questions. For example, you should be able to identify who the best person is to answer the phone when someone calls to inquire about your services. Do they know how to communicate in a way that would convince someone to engage your agency for services? There are so many ways to do this wrong and it is so satisfying and profitable if you do it right.
Monitor KPIs Regularly to Improve the Performance of Your Home Care Business
It is important to accurately track each area of performance. When thinking about the KPIs we’ve just reviewed, here are some tips. If you don’t already have a system in place, you could do something as simple as creating a dashboard within a spreadsheet that incorporates these six KPIs. It might look like this:
Diligently monitor and update these numbers. We recommend that you analyze performance on a regular basis. Make yourself look at your numbers once every week to two weeks. Don’t obsess, but keep asking yourself questions, and continue to build up your data so that you can easily see where you are and where you are going. Then, on a quarterly or yearly basis use these numbers to share with your team and set goals for the future.
Managing KPIs: One of the Most Important Things You Can Do For Your Home Care Business
These six metrics are just the tip of the iceberg. However, attending to at least these KPIs will help you to develop an understanding of your business performance that will enable you to drive revenue and grow your business over time. Seeing to your business metrics will be the most important regular exercise that you practice as you continue to grow your successful home care agency.
Join the Discussion:
Are you reviewing last year’s business performance right now? What do you think are the most important KPIs to evaluate?