How to Calculate the Value of a Home Care Customer

[00:00]

Cameron Campbell: Hi, I'm Cameron, and welcome to Tea with Tobi, the show where we ask and answer the questions playing on the minds of care sector business leaders. This week's episode is sponsored by The Access Group. We're going to kick off the show with a few words from our very own marketing strategy director, Tobi Alli-Usman.

Tobi Alli-Usman: Thanks, Cameron. Today's guest has actually been on the show before, and he doesn't know it, but that show has had the most streams on Spotify, the most LinkedIn views and the most YouTube views. So there's absolutely no pressure. On that note, I'd like to welcome Mr Simon Crowther.

Simon Crowther, Care Skilled: Hi guys. Hi Tobi, hi Cameron, thanks for having me. That's good to hear, isn't it? Hopefully.

[01:04]

I've received quite a few enquiries from that show, actually: people calling me, clients coming on board, but also people just asking questions. It's great to know that people are out there wanting to know more about their business and how to make it better.

Tobi: And it's always great having you on the show because, similar to us here, you're not afraid to share the strategies and the techniques.

Simon: Not at all. The health and social care sector, including the NHS and everything, is ten times the size of defence. It's a 145-billion-pound sector. If you take just the home care sector alone, it's seven billion in England, not Scotland, just England. That's home care, complex care and supported living. Seven billion is a lot, and most of that is delivered by the independent sector.

[02:02]

That's a big sector, so I'd rather share, because there are a lot of people out there who are really good carers who started their business because they want to care for people. The drivers for most people getting into the care sector that I've met seem to be twofold, and actually running a business is way off their minds. They want a bit of freedom, they don't want to work for anybody else, and they want to deliver good care. Those seem to be the two main drivers. So you get so many people who are really great at caring but then don't know where to go. They don't know where to get clients from or how to start. There's lots of information out there about quality and compliance. You've got the CQC website, the Skills for Care website, NICE and SCIE, loads of resources on how to deliver care, but almost nothing on how to run a business in care.

Tobi: And we're going to get to that, because you're already jumping straight in.

[03:00]

Cameron: I think it's very important to note as well that you don't have to have a care business to watch this. If you're thinking about one in the future, this is for everyone. Just on that note, Simon, could you tell everyone a little about why you know so much about home care? What's your background?

Simon: I've quite a diverse background. I started in social care 20 years ago, in the year 2000, when I got really fed up of corporate life. It wasn't for me. I was working as a programme manager in the financial sector, doing international banking projects, relocating financial services from New York and London into Dublin. I didn't like it. My mother ran care homes, that was her background, and my brother, who's an accountant, got fed up with his job too. We just packed our jobs in and

[04:02]

started a care business. We didn't know anything about it, other than having grown up around it in the family. I went from travelling business class, flying in from Dublin into the City and meetings at Canary Wharf, to going out on less than minimum wage, changing incontinence pads, doing on-call, changing catheters, doing everything. I was a carer. We started from scratch, and then we applied some of the techniques we'd learned in business. Before financial services I was an army officer, and before that I was an engineer, and I applied some of the things I'd learned in blue-chip companies to the care sector, in terms of training people, reports and returns. We built that business from

[05:00]

literally from scratch to seven branches, about 600 staff, contracting with about ten local authorities, and we did that in four and a half years. Then we sold out completely. I left the sector and went off running an e-commerce business selling boxing and mixed martial arts equipment, completely unrelated. Then I came back into the sector with training companies. I've always had training companies in the care sector as well. Then I started doing bits of consultancy. I've worked for local authorities, I've helped people set up businesses, I've set up training businesses, and it occurred to me that I'd learned an awful lot along this journey. So I wanted to help people, and pay my bills by helping other people. Instead of helping service users, like a care business does, I now help the business owners and their registered managers. Our clients aren't just business owners, they're also registered managers. So I'm trying to give something back. I see a huge number of people who are good at delivering care but can't even make

[06:07]

a living for themselves because they just don't quite get the business side, so I help them out. Or someone's got a good-sized business, with several clients or a multi-million-pound business, and we can get them to ten, twenty, thirty million by applying the same techniques: systems, reports, business planning, forecasting, marketing. All these standard business processes and concepts apply to every single business, whether it's a digital marketing business or a care business. It's about helping people understand that, as well as the quality of the care, because the whole point is that somebody who needs care has their life changed for the better, because the person visiting them can do their job, can do it correctly, is employed by a good company, and can deliver

[07:05]

the best care possible. That's the aim, really.

Working out the lifetime value of a home care client

Tobi: One of the things that inspired today's conversation is that I called you last night and we were just talking about our joint client. You started explaining something, and I said, "Look, the way you explain this is so simple. Let me pause you, and let's jump on the show and continue the conversation there." Financials are really important within a company. So the first question I've got for you is: for a business starting from scratch, can you share how you calculate the lifetime value of a customer?

Simon: OK. A lot of the time in the care sector, there's a mentality that because you're caring, talking about money is a dirty word. You've got to get that out of your head, because if you're not making any money, you're going to go bust, and then people aren't going to get care. Simple as that. If you're providing the best care and working a 60-hour week, but you're not even making minimum wage yourself and your staff can't get paid, then what's the

[08:07]

point of doing it? So you've got to think of it as a business, and you've got to talk about the money, however dirty it might seem. That's a mental thing in the care sector. Get over it, because you can't deliver good care unless you've got a sound organisation. It doesn't matter whether you're a charity or private. You could be a charity, but you're still going to have to be solvent at the end of the year. The same concepts apply whether you're not-for-profit, charity, private sector or a PLC. Whatever your vehicle is, you've got to be a solvent, capable business.

So you look at a client and ask, what is that client worth to you? Before you can put any budgets in place, you have to know what a client is worth. In home care that's actually pretty difficult. In a care home it's quite easy: it's the cost of the bed. If you charge, say, £600 a week for a bed, that's the value of

[09:01]

income, and you can work out your profit from that bed. Home care has far more variables. It can depend on how rural the client is, how many miles you've got to travel and how many hours a week you deliver. A live-in care package, 24 hours a day, is very different from a half-hour pop-in in a rural area where you've travelled half an hour to get there. So it's quite hard, and you do have to make some assumptions, but you can make broad-brush ones.

Let's take a really broad-brush example. Say you charge £20 an hour. I know people have all sorts of different rates, but let's say 20 quid. And the client's care package is ten hours a week. It could be 20 hours or five, but let's call it ten. £20 an hour for ten hours is £200 a week. That's the income you're going to get from that client. What's that in a year? Times by 52, that's £10,400. So that client is going to bring £10,400 of income into your business. So how long

[10:00]

are you going to have that client? You don't know. You could have that client for one year, or five or ten. You've no idea, so you've got to put something down. Let's go with a planning figure of three years. So that client's income is £10,400 a year, times three, which is £31,200. That one client might give you lifetime income of £31,200. But then you have to ask, what part of that is actual profit? Again, let's keep it really simple. Say you make 10% profit, which is quite high for care. For some care work it could be as little as 3% or 4%, but we'll go for ten because the mental arithmetic is a little easier for me. So you've worked out your total income of £31,200, you make 10% profit, and 10% is £3,120. That's the

[11:00]

value of a customer. So now you can say to yourself, what am I prepared to pay to get that client? If I said to you, Tobi, if you give me 500 quid and I give you £3,120 back, do you think that's a pretty good deal? You'd say yes, of course, you'd bite my arm off. Yet people in the care sector don't, because they haven't thought about what a client is worth to them, so they don't know what to spend on marketing. If it costs you £500 to acquire that client, take that off £3,120 and that's your profit.

[12:01]

That's a really broad-brush way of doing it, but people don't even do that first calculation. You've got to do it. So that's one client. What if I got ten clients? Well, that's worth £31,200. With ten clients like that, I might pay out £500 per client, so let's say five grand for ten clients. I'll pay five grand out, but I'll get £31,200 back. That's how you need to work out your marketing. It's pretty unsophisticated, but it's the first step. From that, you've got an idea that if I pay out five grand, I'll get ten clients back, however you want to look at it. So that's your budget.

Now, the actual acquisition cost might vary. This is a budget. Your marketing might work

[13:00]

really well, and you've budgeted £500 but only spent £300 per client. You might spend five grand, but instead of getting ten clients in, you might get 20, so suddenly your client acquisition cost is £250, not £500. Or it might be quite expensive. You might be in an expensive area of the country where things cost a bit more, and instead of ten clients you get five, in which case your client acquisition cost is £1,000. But you're still making money. You're making less, but you're still paying out that money and getting the clients back in. That's how you do it, and you base the budget on what you can afford. I just plucked £500 out of thin air. It could be £1,000, £2,000 or £10,000, depending on the size of your business and how much money you've got.

The fact is, I come across an awful lot of clients who remember when you first set up a care business, you literally gave the local authority your telephone number, the phone rang and you got clients. That's gone. That doesn't happen any more. You've got to get on preferred

[14:04]

provider lists, you've got to do tenders, some open, some closed, and local authority pay rates aren't always that good. So you need a mix of local authority and private. And if you're going for the private market, you've got to market yourself like any other business. I have to market myself. Why am I here talking to you? Partly out of the goodness of my heart, but also because I'm trying to convince people I know what I'm doing, so they'll give me a ring and pay me to do work for them. This is marketing.

Tobi: That's really useful, because a number of businesses starting from scratch reach out to us wanting clients, but they don't grasp the structure of how you budget and how you have to look at things.

Choosing where to set up

Cameron: On the same subject of people just starting out, if you had the whole of the UK, how would you go about figuring out where to set up your home care business?

[15:04]

Simon: Right. Home care is hyperlocal. It's absolutely in your area, and I tend to go off population, chimney pots, basically. You're a people business. You need to employ people to deliver the care, and you need people to be your clients, so you need to be in a populous area. That doesn't mean you can only operate in urban areas. Of course you can operate in rural areas, but the rural area is just going to be bigger than a tighter urban area for the same population numbers. Years ago I did some work, not recently, analysing some numbers, and it came out that I could grow a home care branch to a thousand

[16:02]

hours a week in a population of about 200,000. I used to base it on that, and it actually worked out well in the towns I was working in. It just meant that in a suburb of Greater Manchester, say Salford or Bolton, the area was tight, whereas up in rural Lancashire it was a geographically much wider area to reach the same number of people.

Once you've got that number of people, you want to target a bit more closely. Say my marketing budget is £5,000, and that's going to get me ten new clients. I might spread that over five months, spending £1,000 a month, in which case I want two clients a month. Some areas I need to focus on more than others,

[17:02]

so you need to look at the key population areas within the whole area you work in. There's no point targeting a brand new estate full of families. They're not going to have many elderly clients. It might be great for your recruitment, but not for your clients. You can go to the Office for National Statistics and look at local authority areas by council ward, and see how many people are over 65 and how many are over 80. This is all free information, and it'll give you really tight areas to concentrate on. Then you can take that budget and do things like leaflet drops, networking and pay-per-click advertising. Somebody could come to you for pay-per-click and say, "My entire budget is five grand. I've decided I want to spend three grand on pay-per-click,

[18:02]

and two grand on other marketing. This is the area I want to focus on. Can you do something for me with pay-per-click just for this area?" Meanwhile they're doing their business networking, talking to the shops in their community, giving talks to community groups, doing leaflet drops and all sorts of other offline marketing. Because it's targeted in those areas, and because they've got a budget, they're expecting enquiries, and they will get them. Simple as that. Whether you turn those enquiries into clients is a whole other topic, where you move from marketing into sales. Once people know about you, you've got to sell your services. But the biggest mistake I see people make is setting up an agency and expecting people to come to them, when nobody knows they exist.

Tobi: And when we talk about being omnipresent, it's so

[19:05]

important. Say you identify the whole area, and these specific postcodes are where we're going to be omnipresent. We'll do the leaflets, we'll dial up the PPC in those particular areas. It may not be just one marketing channel that gets someone to enquire. They might originally have clicked through to the website from an ad, had a chat with their spouse, then a leaflet came through the door, then they saw a poster at their GP's and thought, that company again. It gives them confidence: this is definitely a company people must know, because I've seen them three times in a short period.

Simon: Exactly. That makes a huge difference.

Buying another home care business

Tobi: I just want to shift gears a little and

[20:00]

talk more to the more advanced care businesses. Last time you came on the show, we talked about building a care business ready for sale. What I want to talk about now is: what if a home care business wanted to acquire another home care business? What should they be looking for in the right acquisition? And this isn't set up. This wasn't pre-agreed between us.

Simon: I've actually been asked this this week, so you didn't know that.

Tobi: I've been asked it as well this week.

Simon: Buying a business is a whole issue in its own right. It's difficult, and it's dangerous if you don't know what you're doing. I've done it. I made a complete mistake. I spent 60 grand on a business, a long time ago, 15 years ago.

[21:03]

60 grand is still a lot of money now, and 15 or 16 years ago it was really a lot of money. I gave back the entire contract three months later because it was unworkable. I'd wasted my money completely, because I didn't really know what I was doing at the time. I was growing my own business, I got excited because it was for sale and they had a great-looking contract, but I didn't really get into the bones of it. I didn't look at what that business was about.

In home care, you have to ask yourself what you're buying. If you're buying a nursing home or a care home, you're buying an asset, a physical building. You can walk around it and see its physical state. You've actually got an asset that's worth something, and you can get an idea of the operation just by looking around. In home care, what are you buying? There's actually nothing there. A couple of PCs, a bit of software somebody rents. You're not actually buying anything. It's all goodwill. So you've got to be sure

[22:04]

that what you're buying will still be there when the owner leaves. Is the business completely owner-operated, so that once the owner walks out of the door, the business is gone because they were the glue holding it together? How do you know? It's usually done through an agency, and the agent tells you it all works really well, because they're trying to sell it and get their commission. If you've never operated in this sector before, that's the danger. You can go in thinking, "I'm going to buy this business, it makes this much money every year, and now I'll get that money." You buy the business, the manager goes, the deputy, who worked for the manager and not the business, doesn't get on with you, you're not the same as the old owner, and they go off and do something else. Suddenly you've lost them. Then key staff leave, and

[23:04]

you don't know the business well enough to bring new people in yet. It can unravel very quickly.

On the flip side, the opposite can happen. You buy a business where the owner has it completely systemised, and actually you're not needed, because it's really well run. That's what you want: a really well-run business. The big groups that go out and buy will pay a premium for something that runs well, because they don't want the headache of sorting something out. They want something that works, that they can integrate, and that carries on. That's what most people should be looking for, unless you're a specialist and can look for a failing business to turn around. There's a lot of opportunity there. I'm working with a client at the moment, and that's one of the things we're discussing. He's new to the sector, and I suggested,

[24:02]

"Why don't you buy a failing business? You're engaging my services anyway, so I know what to look for. We could find a failing business and turn it around." You're paying bottom dollar for the business, and if it falls apart, no big deal, you've not lost a great deal of money. But you can spend the money you would have spent on a top-dollar business investing in it and turning it around. That's also a good marketing story, the business has been turned around, and immediately it's worth more because it's gone from failing to working. So that's something you can look at as well, if you know what you're doing.

Systemising the business

Tobi: Systemising is so important, and we talk about it all the time. One of the things you said at the beginning of the show is that when people set up a home care business, they want freedom, and you're only going to get that freedom if the business can operate without you.

Simon: I always talk about

[25:00]

The E-Myth. I have a set reading list my clients get on day one, and The E-Myth is number one, because it gives you an idea of what systemisation is about for a small business. It's the bible for small business. Read it, and something will click: "OK, I get what I have to do now, I get what Simon's on about." Read The E-Myth by Michael Gerber, because that's what systemisation is about. When you can systemise, your business is worth more, you can grow, and you can spend your time developing the business further, developing your staff, focusing on standards and making sure your carers are the best possible carers, so you can deliver the best care to the people using your services. I've

[26:00]

spent a lot of time talking about business on here, and I don't apologise for that, as I said at the very beginning, but it still comes back to the reason you're doing it: you're changing somebody's life for the better. As the owner, you can do that better if you spend your time checking your business is working right and that you're delivering the best possible service, not doing it all yourself. Once you've systemised, you get other people to do it, and you're running around checking everybody's doing it really well. That's what you need to concentrate on.

What Simon would do differently

Tobi: We could talk about this all day, and one at a time, but I want to ask you: you built a business to seven branches and 600 staff and sold it. I know you're helping businesses now, but if you were to do it again, what's one thing you'd do differently that most businesses aren't doing?

Simon: Spend money on marketing. Simple as that. I would pour the cash into marketing, simply because not many people are doing

[27:04]

it. People are still relying on local authority work. When I had my business, the private market was still very small. With austerity, and even before austerity, councils were already cutting back, and since I sold mine, more and more councils have cut back on what they spend, so the private sector has grown. I think when I sold, private payers were probably worth 2% or 3% of the market. Now I think it's 30%. Yet people don't chase that private sector, because they think spending £5,000 on marketing is really expensive, without realising that if they spent £5,000, they'd get £30,000 back.

So that's what I'd be doing, and in this digital world, it would be digital marketing. There are lots of different marketing channels, and the owner of a business has to decide where their marketing budget goes.

[28:04]

The digital side is specialist. It's difficult, you've got to know what you're doing, and it's probably the most expensive marketing channel, to be honest, but it also gives the biggest return. So spend your money there. Then there's business networking: physically going out and introducing yourself to your pharmacists, your GPs, the mobility shops in your area, your community groups, the churches, mosques and synagogues, the British Legion or whatever it is. The owner going out, pounding the pavement and shaking hands with people. There's no substitute for that, and you can't pay someone else to do it. That's the owner, or the registered manager, or both, going out and doing that kind of thing.

[29:00]

Get involved in the community, and then pour all your money into digital marketing so that you are everywhere. Because who's buying care? Yes, people buy care for themselves, but it's also people my age buying for our parents. Where do I go to buy anything? I Google it. First thing I do is Google care agencies in my area, and that's it. And the grandkids now will use Siri: "Siri, home care in my area."

Future-proofing with technology

Tobi: And it's future-proofing the business as well.

Simon: Future-proofing the business isn't just about

[30:00]

marketing either. We're getting to the stage where this technology is pretty cheap. An Alexa Dot is 30 quid or something, it's not very expensive. Why aren't we putting them into clients' houses to remind them to take their medication? Why isn't there an API written into the care software so the care software can program Alexa remotely to remind people to take their meds? Or somebody sits there and says, "Alexa, when's my carer showing up?" and it tells them not just when the carer is due but where they are right now and how far away they are. That's cheap stuff. This is technology that can change things, and if you're not thinking about it and how to do it, you're missing out. The software companies will write it for you, but you've got to be thinking about how to implement it now.

Tobi: You've got me

[31:06]

thinking now.

Simon: If you've got care software, ask the provider what their plans are for assisted living technology. And there's also the Facebook one, a sort of screen they pushed out over lockdown so people could communicate with their grandparents. I've forgotten what it's called. It's a physical object, like a picture frame. They're all developing this kind of consumer software and hardware, and it's coming. You need to link into it, and you need to be thinking about it now. If you're not doing it, you certainly need to be

[32:05]

thinking about how. So that's what I'd do very differently, aside from marketing. I'd be thinking, right, how do I use tech now in my day-to-day care delivery? That's going to be the major difference.

Tobi: And some people listening to or watching this will be thinking, "When would I even get the time to do something like that?" But if you have processes and systems, and your business is running itself, it gives you time for R&D, research and development, to invest back into the company. I could talk to you all day, Simon. You'll be back on the show. Do you want to tell everyone where to find you?

Simon: Yes, just go to Care Skilled, that's www.careskilled.co.uk,

[33:03]

and we're on YouTube too, under Care Skilled. There are some free marketing videos up there for people. I've started putting together a bit of an overview. I've also noticed a lot of typos on some of the stuff I've done on there, so bear with it, but there's a lot of free content I'm putting up at the moment. That's how people can get me.

Cameron: Well, thank you very much for coming on, Simon, and thank you everyone for listening and watching. If you haven't already seen it, we've got a brand new website with tons of resources, all collated in one place and really easy to find, so definitely check that out. We pre-recorded this, but on Friday Tobi will be doing a webinar at 1pm, so definitely check that out. Message us if you need the link, and we'll

[34:02]

see you all in the next Tea with Tobi.