April 4, 2022
Agata Kaczmarek
According to IBIS World, Home Healthcare is a $114.9 billion industry just in the United States. The industry contains over 400,000 businesses that employ almost 2 million individuals. Companies range in size from employing only one or two people to potentially hundreds, spanning the country.
Establishing a home healthcare business comes with its own set of challenges. However, we hope to cover the how-to in this article so that your business starts off on the right foot and generates a profit as soon as possible.
Common Steps to Starting a Home Healthcare Business
- Build a business model answering basic questions such as name and purpose
- Register your business as a legal entity and obtain an EIN to file taxes
- Contact financial institutions to set up business bank accounts and credit cards
- Obtain financing if not readily available
- Obtain the right permits and certifications with the State
- Purchase the appropriate insurance
- Set up an accounting system
- Marketing and Advertising plan
- Hire employees if necessary
- Hire a same day delivery courier if you’re selling healthcare goods or supplying medications
How Much Does It Cost to Start a Home Healthcare Business?
Now that you’ve thought about the journey, you’re interested in finding out the nitty-gritty of how much it costs to start such a business. Of course, as with any other business, large or small, upfront costs must be considered before diving into the process headfirst.
Before heading into the numbers, it’s important to note that there are two types of home care business models: non-medical home care and medical home care. The costs associated with each business type will vary and have different requirements. If you are starting a non medical home care and need to build a business plan, check out our free non medical home care business plan template.
Non-Medical Home Healthcare Startup Costs
The average startup cost for a non-medical home healthcare business is $45,000.
Three sources (Biz2Credit, Ankota, Home Care How To) advise us on the cost of starting a non-medical home care business.
- Minimum startup cost for a non-medical home healthcare business = $40,000
- Maximum startup cost for a non-medical home healthcare business = $80,000
- Average startup costs for a non-medical home healthcare business = $45,000
Medical Home Healthcare Startup Costs
The average startup cost for a medical home healthcare business is $170,000.
Three sources (Biz2Credit, BrightStart Care, Ankota) advise us on the various costs of starting a medical healthcare business.
- Minimum startup cost for a medical home healthcare business = $150,000
- Maximum startup cost for a medical home healthcare business = $350,000
- Average startup costs for a medical home healthcare business = $170,000
The various expenses which go into starting a home healthcare business fall into the following categories:
- Franchise Fee*
- Office Space
- Office Supplies
- Utilities
- Furnishings
- Marketing and Advertising
- Computer and software
- Insurance
- Legal and licensing fees
- Employees
- Training
How Much Can a Home Healthcare Business Make in Sales?
Several factors go into calculating the average revenue for a home healthcare business. To start the calculation, you’ll need to know a couple of key pieces of information, starting with the price. You’ll also need to know the number of employees and how many clients there are.
How to Set the Price?
Setting the right prices in your business will impact the number of clients and the end revenue. Some fees will deter or attract clients and employees since it has an overall impact on their salaries. Let’s start with reviewing how you can set prices if you’re unsure where to start.
Market-Based Pricing
Simply put, charge what the market is charging. As an example, in the eastern part of the United States, 1 to 2-hour visits are charged at around $30 an hour, with those above 12 hours at $25 an hour. On the other hand, looking at the type of care rather than length, on the eastern coast, the price would be $24 an hour for a companion or homemaker, and for medical or nursing assistance, it would run $26 an hour.
You have to determine which route is best for you as a business. For businesses focusing on non-medical home care, it’s worth exploring the hourly option. For those providing medical home care, pricing out various types of home care would be more beneficial. The idea, however, is to stay within the market range.
A price that swings far out from the current market trends will deter people from using the services provided by the business. Everyone is familiar with less expensive services, which fall short of expectations. On the other hand, no one wants to use a business that prices itself too high, especially for a newer business. Therefore, it’s best to stick with what people expect to pay for the service or somewhere within that vicinity.
Target-Based Pricing
Pricing your business with a target in mind means starting with some research. First, you need to know the profit margin trends within the industry to work your way backwards. For non-medical home healthcare, the average profit margin is 25%, whereas for medical home healthcare that number drops to 20.7% on average. With this in mind, you’ll want to find out some of the following information.
- How much will it cost to employ caregivers?
- How much will training cost?
- Will you offer 24/7 care and what are the costs associated?
- For medical home healthcare, how much is an RN to keep on staff?
- How much are all other costs?
These key pieces of information will vary based on the expected size of your business and the area you’ll operate within. Once you’ve gathered some of this data, it’s easy enough to calculate a potential profit margin and work your way back. If you’d like to meet a goal of 20%, you’ll have to set your prices accordingly, to offset the costs of operating the business.
What is the potential number of clients?
Current statistics show that around 15 million patients have around 600 million visits per year with a home healthcare agency. The pool of potential patients is large, though the business should position itself the best it can regarding the rest of the statistics. Surveys show that 70% of patients are 65 years old and older with 60.9% of those being female. Further, 76.1% identified as non-Hispanic white.
The age group most likely to use a home healthcare business will require medical attention for various conditions such as heart disease and diabetes. Of course, their penchant for using a home healthcare business stems from their want to live independently while still getting the care they require. On the other hand, a third of the patients who are under 60, need this attention because of potential rehabilitation or disabilities.
Statistics reveal there is a large pool of potential patients to care for, with the numbers growing as the population ages. Positioning the business close to areas with an older population will improve the chances of having a larger patient base. Of course, this will drive the price the business can set to offset the costs associated with running a home healthcare.
Home Healthcare business revenue potential
Revenue potential will depend on many factors especially the number of clients, the size of the business, and the prices. Largely, it will depend on the billable hours using the same concept as a lawyer. The more clients the business treats in a week, the more potential for revenue. Remember, a business can start with just you, on the lower end of the revenue spectrum. As you add more employees, the expenses will grow, but so will the billable hours and ultimately revenue.
Non-Medical Home Healthcare Business Annual Revenue
The average annual revenue for a non-medical home healthcare business is $90,000.
According to sources (ExecutiveHomecareFranchise, BizInsure, SeniorServiceBusiness) this is the potential revenue a non-medical home healthcare business can generate.
- Minimum revenue for a non-medical home healthcare business = $50,000
- Maximum revenue for a non-medical home healthcare business = $161,000
- Average revenue for a non-medical home healthcare business = $90,000
Medical Home Healthcare Business Annual Revenue
The average annual revenue for a medical home healthcare business is $300,000 annually.
These sources (CertifiedHomecareConsulting, MillionDollarHomeCare, Salary.com) provide a general idea of the expected annual revenue for a medical home healthcare business.
- Minimum revenue for a medical home healthcare business = $57,000
- Maximum revenue for a medical home healthcare business = $2,000,000
- Average revenue for a medical home healthcare business = $300,000
What Are Common Expenses for a Home Healthcare Business?
Businesses come with operating expenses which fall into two categories: variable expenses and fixed expenses. These expenses need to be accounted for month after month. Variable expenses will change with every bill, whereas fixed expenses will always be the same.
Variable Expenses
- Utilities
- Repairs and maintenance
- Credit card fees (if any opened)
- Supplies
Fixed Expenses:
- Rent for office space
- Loan repayments
- Advertising and marketing
- Insurance
- Software
- Salaries
How much profit can a Home Healthcare business generate?
The average profit for a home healthcare business is roughly $62,000 annually. We calculated this based on the average annual revenue of $300,000 and average profit margin of 20.7% that we found below.
Profit for a home healthcare business can vary widely especially as you start to expand. Remaining as a one-person company will make the business profitable as well, but there is potential for higher income the larger the business grows.
Non-Medical Home Healthcare Profit Margin
The average profit margin for a non-medical home healthcare business = 25%
Three different sources (RespectCareGivers, RoseMarkSystems, ProfitableVenture) provide us with the range of potential profit margins in a non-medical home healthcare business.
- The minimum profit margin for a non-medical home healthcare business = 20%
- The maximum profit margin for a non-medical home healthcare business = 40%
- The average profit margin for a non-medical home healthcare business = 25%
Medical Home Healthcare Profit Margin
The average profit margin for a medical home healthcare business = 20.7%
Three different sources (HealthAffairs, HomeHealthCareNews, RoseMarkSystems) provide us with the range of potential profit margins in a medical home healthcare business.
- The minimum profit margin for a medical home healthcare business = 15.8%
- The maximum profit margin for a medical home healthcare business = 40%
- The average profit margin for a medical home healthcare business = 20.7%
Need any help creating financial projections so you can plan how much it will cost to start your home healthcare business and how much you can make? ProjectionHub has helped nearly 50,000 businesses create projections for their business and we have a template made specifically for home healthcare startups.
