Miriam Allred (00:00)
Welcome to the Home Care Strategy Lab. I'm your host, Miriam Allred. It's great to be back with everyone here in the lab. Today I'm joined by Dana Charumbira, the Managing Director of the Home Care CPAs. Dana, thanks for being here in the lab.
Dana (00:16.4)
Yeah, thanks for having me, Miriam.
Miriam Allred (00:18.7)
We've talked a lot over the last few months and I have been thinking about this topic in the back of my mind of like breaking down a single hour of home care. And so you and I are about to nerd out on numbers and finances and data and home care. And I'm just really looking forward to this. I think a lot of people know you and have gotten to know you a little bit better over the last year or so you've been on stages, you've been on podcasts and webinars, but
I want to have you introduce yourself. Talk to us a little bit about your personal background, maybe life before you were a CPA, life before home care, and then the current firm and what you're up to.
Dana (00:56.5)
Yeah. Yeah. So it's great to be back. I'm excited to be on the podcast and impact some numbers. Financial analysis is something, especially in the home care industry for me, that's really exciting and just talking through numbers and how that impacts the agency. So I'm excited for today's topic. But before we jump in, yeah, so a little bit about my background. So we've been working with home care agencies for close to five years now has been our primary focus. So we do a lot of the back end support, billing, payroll, accounting, financial analysis, tax, and
I've been a CPA for 15 years, which is funny because when I first started working, I was like, I really want to say I've been doing this for a decade. And I feel like now that I can say that, I'm like, my gosh, that sounds so long. I, yeah, I've had a, I had a really interesting like corporate path. So I started out of school, an accounting firm. I was in risk consulting, which was interesting, like learning internal controls. I moved into a corporate headquartered in Chicago, which took me overseas. So I lived.
in South Africa for a number of years. And that was just a really transformative experience for me professionally, personally, in a lot of ways in life. And with that organization, it was a great way to learn the ins and outs of accounting and then also how that translates to a business and the performance. And I feel lucky that I can then translate that for home care agency owners and just have real conversations around like, are numbers doing what they're doing?
If you make this change, what does that do for your agency? And then for me, being able to layer in like the people aspect of it. So one of the biggest things that I've experienced is just the impact that opportunity and having a purpose in your work, that impact it can have on people's lives. So clients' lives, caregivers' lives, employees' lives, it just can touch so many people. And that's what I love about home care and I love about talking with home care owners.
They just really care. And the ones that really do care for me tend to be the ones that have some of the strongest financial performance. So yeah, it's been a great fit. We're consistently and constantly trying to evolve and improve what we're doing and really remain relevant and topical. So digging into industry trends and what's happening there for us is really exciting and keeping up with the pulse of what's going on.
Miriam Allred (03:19.1)
Awesome. Well, thank you for sharing all of that. As you were sharing, I was having this flashback to, think when we first maybe met or you emailed me, I think I was at Home Care Pulse and you were one of those just like obsessed with the benchmarking study. I picture you have it like by your nightstand and you're like reading at night. And you even just said to me while we were talking about this, like you're so excited for the new study to come out. You've just always been like in the trenches of the numbers of home care. And I think that is just reflective of you and what you're passionate about is
Dana (03:33.2)
Yeah.
Miriam Allred (03:49.1)
It's all about the care. It's all about the people. But behind the scenes, there's money, there's finances, there's legal, there's risk, there's all of these kind of mundane things. And I was just saying to you, we're about to like nerd out on this topic in a good way. Like we need to get into the nitty gritty. Every business needs to be thinking about where and what every single dollar means to them. And so I want to start by talking about like shift duration. And I want us to start with the
the standard kind of eight hour shift. You and I have talked about that as like maybe the gold standard is like that eight hour shift. And so let's talk about the gross margin for that standard eight hour shift. And then for context, we're going to talk about longer shift durations and shorter shift durations and by different payer types today. But let's start with this again, kind of gold standard eight hour shift. Why, why would you maybe consider that the gold standard and what does a gross margin typically look like for that eight hour shift?
Dana (04:44.1)
Yeah, yeah, so I think eight hours is a good base case. I think that for a lot of reasons, it's kind of what people gravitate towards as like a great case would be, you know, a standard 40 hours a week. It's, you know, for staffing purposes, it meets a caregiver need typically that wants full time. You're not going into overtime. It's kind of for me that, you know, eight hour shift to from a pricing perspective is somewhat.
will fit in like a client affordability metric. Because when you start to push into like a 12 or 24 hour, then you have different thoughts around other options. So I think eight hours can tend to be one that we sort of think of as like a standard case. So I'll unpack the numbers that I think through when I'm analyzing these cases in terms of like shift duration. And I do have a spreadsheet. I am an accountant. So I'm going to pop into that and just kind of talk through.
some of the assumptions and I think really pausing and unpacking why some of those are built in there and sometimes what agencies miss when they're thinking about it. So when I'm looking and thinking about an eight hour shift, a lot of times, so kind of backing up, we look a lot at gross margin as an industry and I do think that's important to measure. And that's where payer source comes into play because there's different, I think with different payer sources, you have different.
parameters or guidelines around what a gross margin should be or is achievable. And a lot of what I'm talking about right now is a private pay shift. These are private pay shift assumptions, because a lot of the times, if it's claim-based like Medicaid, VA, anything with like, you know, some of the triple A billings, those are typically going to be like a standard reimbursement rate. They're not going to necessarily vary by shift length. So lot of this will be like a private pay discussion for now.
So typically, if we want to in private pay achieve like a 40 % 45 % gross margin, that's what we target. And there's some variability there too if it's a franchise versus non-franchise, because franchises, typically have a royalty fee. We tend to include royalties in cost of sales. And there's different schools of thought around that. Our position on it is because you're paying that franchise royalty fee when you're incurring revenue that it is truly a direct cost of the sale. Others put it in overhead. For the numbers I'm gonna talk through today, I'm not assuming that there's any royalties included just as sort of a baseline for everybody. Just in case you're not putting it there, you're not a franchise, we're all on the same page. So a lot of the times what agencies will do, and this typically does achieve that 40 to 45 % target, is they'll take their caregiver pay rate and then they'll double it and set that as their price per hour.
So the first example I'm gonna talk through on an eight hour shift, I've assumed that my price per hour is $36 and my pay rate's 18. This number varies geographically. We work through agencies all across the country. One of the things that we look at closely is their average pay rate and their average price per hour, especially when we're looking at gross margin fluctuation, because those are the two drivers that volume is one thing, but typically the driver is going to be the fluctuation in one of those two numbers.
So that's a pretty standard sort of simple way to think about, okay, my price per hour, or sorry, my pay rate per hour, double that. And then what happens though sometimes is, and there's different people that interact with this number, right? So there's the agency owner, the leadership, if you have an executive director, director of operations, then you have like a recruiter and a scheduler. And so a lot of the times people take that $18 as like that cost for that hour.
and they sort of skip out on what else goes into that total like hour cost from an employment perspective. So we tend to layer in, and this is sort of what we've just developed is like our standard when we analyze everything. So that the employer tax on that $18 an hour, which is FICA standard. So that's the federal, like your social security and Medicare, that's 7.65%. And then usually there's a state unemployment tax, which
That varies based on your state, based on unemployment claims. For the numbers we're talking through today, I've assumed 3%. And again, that can vary. And then there's usually workers comp. It's pretty much required everywhere. And again, very much varies by the state as well as claim history for an agency or if it's a newer agency, sometimes there's a higher rate applied as they're working through things. I've assumed 2 % for this one.
So if you're in California, number is going to be higher tip most likely. If you're in New York, that number is going to be higher most likely. It really is a lot dependent on the state that influences that. So when I look at the total cost, I layer all those things in on that $18, we get to $20.28. So really, you're looking at that when you take a cost of care, you're looking at 1.25 or 1.3 times that.
price per hour, or pay rate per hour to get like to your total cost. And so when we do the numbers on that, if we're looking at a $36 price per hour, and we reduce that by our $28.28 in our total cost, we come out to a gross profit of $15.72, which is a gross margin of like 43.68%.
Dana (10:21.739)
So that's the gross margin aspect of it. And then if we look at like, what's the total dollar amount earned on that one shift. So if we just take our gross profit times our number of hours, that's $125 and 78 cents. Getting very specific in my accounting right now. And then the variable here that there's some assumptions built into which overhead will impact on it probably a little bit later more so, but I'll talk through.
How I think about it when we're looking at assigning those costs to the shifts themselves. So if we're looking at an agency, and I use 4,000 hours a month on average at this $36, that's an agency that's like 1.7 million in revenue that I'm using to kind of set my overhead rate. So I'm gonna assume a 40 % gross margin and then,
Overhead of about 40 grand a month that gets me to a net income of two hundred and eleven thousand dollars, which is twelve percent return on sales Return on sales varies. The most recent benchmarking report had it around seven percent We see agencies typically between like five and twenty percent. So twelve is a fair number and I'm just kind of fact-checking like my my assumptions around what my overhead rate that I'm going to apply to the shift is
So what I take there is that assumed overhead number per month of 40,000 divided by the 4,000 hours of care. So that means that my overhead costs, which is my admin salaries, my rent, my recruitment, any technology fees that you're paying, that's about another $10 an hour that we need to layer in to that shift cost to get to like that true net profit for that shift. So if we reduce that 125,
If we're assuming it's an eight hour shift, we take that 10 times eight to get to $80. So our net profit is like $45.78 on that shift. Profit per hour is about $572. And then the total client bill on that one's gonna be like $288 for that eight hours of care.
So that's the unpacking of an eight hour shift and the metrics around that and sort of in line with what we're seeing, hitting some of the targets for gross margin and then the overhead spend.
