How Much Will Your Costs Increase on 1st April?
Your costs are going to increase significantly come 1st April.
Can your care service handle this increase? What are you going to do to make sure it can?
With inflation at around 4% and the National Living Wage due to increase on 1st April by 9.8% you are going to need an overall increase in revenue of at least 10% simply to financially tread water.
Of course, your local council and other non-private buyers of your service aren’t going to agree to increase your fees simply because your costs have increased.
Will you take the hit? (Can you afford to take the hit?) Or will you work out what your cost rises will be, the financial impact based on your current fees and then decide which fees you need increasing? Of course, you should do the latter…today.
Current Situation
Any staff members currently on National Living or Minimum wages will have their hourly rates increased. You will also need to increase the rates of those currently on higher hourly rates in order to maintain the pay differences.
You probably know by now what your council uplift will be and that it won’t be enough.
You may also care for clients whose councils are announcing fee levels that are clearly focused on keeping their costs down as opposed to paying you what you need.
For example, Worcestershire council have launched a new Dynamic Purchasing System (DPS) framework for adults over 65 that caps rates from April that are lower than they are right now on average.
Professor Martin Green OBE, CEO of Care England says, “The Council’s position has created a situation where multiple provider failures are likely to occur.”
Read full article: Worcestershire County Council failing those who need care and support.
Birmingham City Council (who has effectively declared bankruptcy) has announced fees for various services that are quite frankly paltry. Older adult residential homes will have fees increasing from £622 a week to £678 on average. Older adult nursing homes will have average fees rising from £715 a week to £780 on average.
Pretty much all local councils are struggling financially and will be working even harder to keep your fees down.
Read Post: 7 Reasons Why You Should Not Accept the Care Fees Your Commissioners Want to Pay.
How Bad Will it Be?
If you think you’re too busy to look at this or it happens every year and there is nothing you can do so why bother trying, I want to give you an idea of the financial impact the NLW and NMW rises will bring on 1st April.
Current NLW is £10.42 an hour. That will rise to £11.44 an hour on 1st April – a £1.02 increase.
10 carers on NLW working roughly 42 hours a week currently costs £4,376.40 a week. On 1st April that will increase to £4,804.80 a week.
That’s an increase of £428.40 a week or £22,276.80 a year for just 10 carers.
Of course, take all your staff and their varying hourly rates into consideration and this figure will be much higher and very possibly the equivalent of a weekly client fee.
For a 50-bed nursing home having an overall monthly staff bill of £200,000, an overall increase of 9.8% will take that cost to £219,600 and month. That’s an increase of £19,600 a month or £4,523 a week.
But that isn’t the true cost to you as an employer.
Your hourly cost is greater because you have to pay On-cost (NI and pension) and Cover cost. Currently NI and pension is 16.25% and your Cover cost could be between 12% and 25% depending on how much cover you have to provide for annual leave, training and so on. For this example, let’s use lowest 12% for Cover cost.
At £10.42 add On-cost of 16.25% and you have £12.11. Next add Cover cost of 12% and your true hourly cost is £13.57. That’s £3.15 more than the hourly rate you pay the carer.
Using the same employer cost percentages, after April your true hourly cost for those on NLW of £11.44 will be £14.89an hour – £3.45 higher than actual hourly rate.
Your actual hourly cost is going to increase by £1.32 an hour, not £1.02 an hour.
For those 10 carers on NLW your cost will increase by £554.40 a week or £28,829 a year.
Again, do this for all your staff and your cost increase is going to be significant.
Just an aside, if you don’t add extra employer cost percentages to your rates then I hope you see the difference they can make to your costs.
Because staff costs are such a large proportion of your overall costs, not including On-cost and Cover cost could make your fees around 20% lower than what they should be. That’s 20% straight off your bottom line.
This little calculation highlights not only how important it is that you know your costs but also the importance of working out and adding your On-cost and Cover cost percentages.
If you calculate your annual wage bill for 10 carers on NLW based £11.44 without extra employer cost, you will have an annual cost of £249,850 for those 10 carers. With extra employer cost the bill increases to £325,198.
That’s a difference of £75,348 – that’s the kind of difference this extra employer cost can make so please make sure you calculate it.
Read: How Much Extra Employer Costs Do You Pay?
Because your hourly rates are going to increase so is the cost of the care you provide. So, your minimum breakeven cost per client is going to increase and so is the cost of any extra individual care you need to provide.
What Can You Do?
There are three major steps to doing something about this.
1. Look at your diary or calendar and set aside time right now to review your costs and fees.
2. Know your cost rises and hence what you need your fees to be.
3. Set client reviews and renegotiate fees with your commissioners.
You won’t be able to carry out step 3 successfully without first doing step 2. Commissioners will be targeted on keeping your fees down and will challenge you on how you worked out the new fee level and refuse to increase if you don’t have a cast-iron, numbers-driven justification.
You won’t carry out step 2 without doing step 1 first. It’s so easy to get sucked into the day-to-day that unless this time is booked in, it won’t get done.
Having set aside the time you need to know what steps to take to review your costs and fees. If you have any doubts how to do this then click this link and download my free report, 5 Steps to Make Your Care Business Financially Secure.
The report will take you through the steps to working out your costs and setting accurate fees.
Knowing your numbers and working out accurate care fees is no guarantee that you will receive them and so the report also covers how to negotiate from a position of strength in order to win the care fees you need.
Only when you have accurately – no finger-in-the-air estimate – worked out what your costs will be from April can you then carry out step 2 and negotiate for those fees.
This is because your commissioners will be targeted with keeping within their shrinking budgets and keeping your fees down to a minimum.
They will use the Fair Cost of Care initiative from July 2022 to challenge your figures such as your average blended hourly rates and your Cover Cost percentage to try and catch you out and make out that they know better – which they don’t.
If you don’t have these numbers to back you up then I guarantee you will not win the argument.
So please do click this link and download this free report.
Download: 5 Steps to Make Your Care Business Financially Secure.
Accurately working out your costs, especially staff costs, average hourly rates and individual fees is a lot of work but vital if you are going to be financially secure.
The report is great for giving you the big picture and steps to follow.
But to help you further, we developed the Care Fee Calculator which you can try out for free. In fact, I give you enough time (30 days) to use it to review all your clients at no cost to you.
And because time really is of the essence now, I do recommend you check the tool out as takes you through all the steps and carries out all the calculations for you. Once your costs are in you can create accurate individual fees in minutes.
The Care Fee Calculator will also give you an instant profit and loss comparison between the fee you are receiving and the fee you need.
One provider did just that and after years of trying to increase a fee for someone in his care, he succeeded because the Care Fee Calculator gave him all the numbers he needed to justify the fee he needed.
His fee increased from £460 a week to £2076 a week because the council admitted they ‘couldn’t find an argument to not pay what he was asking’.
This large increase also indicates just how under-funded this provider was for this client over previous years.
What’s also key here is that this provider has now set a precedent with the LA. If he presents a strong, number-driven, argument for a fee increase, like he did with this client, then they will struggle to say no.
If he can do it – with an LA that is known for paying less than average – then you can do it too.
Your Urgent Priority
Take a step back from the day-to-day running of your care home(s) and review your cost rises.
Then review all your client fees and see how much profit you are making based on your new costs. Then work out what each fee needs to be to make at least 25% profit margin.
Use the Care Fee Calculator to help you as it did the care provider above. The investment in this tool is nothing compared to the return you will receive from it.
And, as I said, you can take advantage of the 30-day free trial to review all your current fees – nothing to lose and everything to gain.
Because this is such a crucial time not only will you have a tool that is going give you the clarity to set the right fee and increase the chance of successfully receiving it, you’ll also receive:
• Additional Features: Enjoy upcoming features – such as our soon to launch analytics section – at no extra cost.
• Price Lock: Be immune to any future price rises of the product. (Hint: we are currently looking at this for April.)
• Half Price First Year’s Subscription: For fairness, the cost our calculator is based on the number of clients you have. Use coupon code CFCEASTER24 to get a further 50% off. (This offer ends at the end of the month.)
Sign-up to the Care Fee Calculator today.
Whether you use our tool of not, I urge you to look at what your costs will be in April and what that means to the fees you need and fight for those fees. Too many care providers go under each year because they don’t do this. Make sure you are not one of them.
Please do this now and contact me at chris@qualityofcare.co.uk if you need any help.
