What's a good profit margin for a home care agency and how big a cut should I take as the owner?
Short answer: 36-50% gross profit margin and 10-15% owner's cut—if you're at the stage where you're reliant on your business to support you financially and the business has gotten off the ground.
Let's give a little context for that since it varies from business to business.
During a forum on this year's Home Care Growth Summit I asked this question to two veteran home care leaders: Jeff Wiberg, CEO of Family Resource Home Care and a member of the Home Care Association of America board, and Tim Murray, Co-founder of Aware Senior Care.
Here are some key points from what they told me:
- According to Tim, a good target to aim for is 50% gross profit margin and 15% owner's cut (depending on how you calculate your finances and allocate profits, this may be near-synonymous with net profit margin or retained earnings percentage).
- That said, the above numbers are tough to hit--they're high numbers to aim for as your agency matures, especially if the eventual goal is to sell.
- Jeff takes a more conservative approach that may still be difficult, but represent more achievable numbers for a newer agency: 36-38% gross profit margin and 10-12% owner's cut
- It goes without saying that a very early-stage agency still getting off its feet will likely begin as an unprofitable business and grow into a profit margin beginning at ground zero. The above numbers are targets to aim for, not something to expect within your first few months.
You'll notice the caveat I included at the beginning: these are owner's cut that make sense in some circumstances. Jen Ramos, who's operated and sold three of her own agencies and now brokers mergers/acquisitions in home care, gives a different take.
Jen says you should aim to take as little as people out of your business for at least the first two years, if not longer, so that you can invest it back into the business.
Then, she says, it depends on your goals with your agency and your financial situation. You stand to make the most money by selling your agency; so, if you have the financial means to play the long game, continuing to invest profits back into the business will help you hire the right people who can accelerate the agency to the scale and position where it's ready to sell.
The vast majority of agency owners aren't in a position to reinvest all their profits back into the business for the foreseeable future, and that's okay. Manage the differing perspectives above and decide what makes sense for your long-term goals.