How Much Should Your Home Care Agency be Charging Clients?

Home care billing rates

Here’s a step-by-step process to creating a pricing strategy for your home care agency. 

One of the most fundamental questions you’ll ask as a home care agency owner is how much to charge for your services.

Whether you’re just starting out or you’ve been in business for twenty years, you’re at risk of either leaving money on the table or charging too much unless you’re continually evaluating your billing rates and following an intentional, informed strategy.

There’s no single way to decide on the right rates, but there are guiding principles and steps to help you. Here’s the process we recommend using to decide how much you should charge your clients for home care services:

  1. Use rate benchmarking and market research to get a baseline.
  2. Consider your long-term strategy and positioning in the market.
  3. Work backwards to set prices based on your goals and forecasted expenses.

We’ll explore each of those in more depth and go over a few other things that home care agency owners need to consider.

#1: Use rate benchmarking and market research to get a baseline.

Other agencies’ rates won’t determine your rates, but they will provide you with some needed perspective.

Thanks to the annual Home Care Benchmarking Study, we have solid benchmarks to give you a general idea of how your rates compare to those in your region.

We benchmark rates for agencies billing with two different methods—skill level or length of visit. Here are the percentage of agencies billing for each of those.

home care billing rates

Here’s what length of visit billing rates look like across the United States, by region:

home care billing rates

And here’s what skill-based rates look like by region:

home care billing rate benchmarking

While these provide a useful big picture of billing rates in your region, you should also conduct market research to determine rates in your local area.

It won’t completely determine your decision (more on that in step #3), but knowing what your competitors charge will set you up to make informed decisions about how to position yourself in the market.

Shameless plug because we’ve got to bring home the bacon too: if this data was useful to you, know that there’s a lot more where that came from. The 2020 Benchmarking Study has everything from aggregate financial statements to caregiver pay rates. You can learn more and purchase the study here.

#2: Consider your long-term strategy and positioning in the market.

Avoid setting billing rates based on present conditions alone; instead, set them based on a clearly defined long-term strategy.

Your positioning strategy will shape not only your prices, but also the ways you advertise yourself to the community and communicate your value to referral sources. Your pricing will be much easier to determine if you understand what your unique differentiator is.

Here are some common positioning strategies, and the ways that they would dictate your pricing:

1. The lowest-cost agency.

It’s good for consumers to have a low-cost option; that said, we generally caution agencies to avoid competing on price. It forces you into a low-margin position and attracts clients who want the cheapest caregivers, not necessarily the right caregivers.

2. The service differentiator

This is a common strategy and is often the most realistic path to take because it provides the most options. Generally, this would entail providing some kind of specialization (advanced dementia care, a program focused on the social determinants of health, etc.), and either offering that as a higher-priced value add-on to your basic services or making that your core service and charging a higher price than more generic competitors.

3. The premier provider

This can be a viable strategy to simply provide the best service in the area, advertise yourself as such, and charge the highest rates.

However, this is easier said than done; every agency tells referral sources that they’re the best. To successfully brand yourself as the premier provider, you’ll need to put in the work both to become the best and have the social proof (testimonials, satisfaction scores, awards, online reviews) to back it up.

Note that these are also heavily dependent on your payer sources; the strategies above are probably most relevant to agencies relying on private pay clients. If you’re relying on other payer sources, your pricing and margins might play by a different set of rules.

Whether you choose one of these three strategies or another strategy entirely, you can’t set a long-term approach to pricing until you have a clear picture of how you’ll position your agency to referral sources and what you want your value to be long-term.

#3: Work backwards to set your goals based on forecasted expenses.

Once you have the context of what your competitors are charging and how you plan to position your agency in the competitive landscape of the local area, it’s time to start working backwards with some basic numbers.

Let’s say you decide to take the premier provider route and differentiate based on quality; the added cost of pursuing this strategy needs to be factored into your calculations. Here are some of the questions you would need to ask to determine your rates:

  • How much will it cost an hour to employ the best caregivers in the area?

  • How much will it cost to train these caregivers to be the best, above and beyond simple compliance training?

  • How much will 24/7 support cost?

  • How much will it cost to keep a good RN on staff to go over care plans?

  • How much will it cost to set up feedback processes to help guarantee quality service?

  • How much will it cost to produce the marketing materials needed to promote your brand?

Once you’ve addressed these questions and built these (and all other) expenses into your forecast, set your rates to meet your target margins.

While it’s important to know where you benchmarking against the industry and local competition, you shouldn’t worry about them too much at the end of the day. It’s unusual for referral sources to ask how much you charge, for instance; you should typically avoid competing on basis of price anyway.

Caregiver Shortages and Raising Rates

This section applies only to agencies who have more client demand than they have caregivers to fill the shifts.

At risk of oversimplifying, basic economic principles might suggest a partial solution to caregiver shortages: raising your rates.

If the demand for care is higher than you’re able to meet, one way to maximize revenue and balance our your supply/demand may be to raise your rates until demand decreases to match your supply of caregivers. The extra demand provides a cushion against losing clients when you raise your rates, and you’ll be making better margins while doing so.

At the same time, raising your rates allows you the option of increasing caregiver pay, which is one of the key factors affecting caregiver recruitment and retention.

We are NOT advocating that every agency in every situation should simply raise their rates. Don’t do this unless you have a clear understanding of how it would fit into your long-term strategy and how it will impact your agency’s positioning in the local market; if you can address those questions, however, this might be a direction that would help your agency.

It’s Not All About the Money, But the Money is Important

Home care is a human-centered service, and no discussion on billing rates and pricing strategy is complete without acknowledging the human side to it.

Home care owners are compassionate people. Discussions of pricing strategy can often sound callous or unfeeling because of the way we casually talk about managing prices for the care people are receiving.

One thing I hope you’ll take from this is that you can care for your clients and care for your livelihood—by which I mean unapologetically work to maximize the profit your business produces.

How you choose to balance those priorities will look a little different for every business and every owner, but the two aren’t diametrically opposed.

You can put people first and still pursue profits.

Growing your business financially, and providing for the needs of yourself and your family, will better equip you to provide higher-quality care to more people.

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