Resources · Money
What an hour of care actually costs you.
Most providers know their pay rate and think they know their cost. The gap between the two is where the margin goes, and it is usually much wider than anybody in the office believes.
The pay rate is not the cost
An hour delivered to a person costs you considerably more than the wage you pay for it, and every element of the difference is predictable.
Start with the wage, then add what the law adds: employer contributions, pension, holiday accrual. Then add the hours you pay for that nobody bills anybody for — travel between calls, training, supervision, handover, induction, shadowing. Then add the cost of the hours you paid for and did not deliver: sickness, cover, the visit that was cancelled at the door.
Then add the part that is easiest to leave out, because it does not appear on a timesheet. Recruitment. Onboarding somebody who leaves in six weeks. Management time. Insurance, systems, the office, the on-call phone. All of it has to be recovered from delivered hours, because delivered hours are the only thing anybody pays you for.
Once that arithmetic is done properly, most providers find their true cost per delivered hour is meaningfully above the figure they had in their head, and that some of the work they are currently doing is being delivered at a loss.
See what is actually left
The margin check works from delivered hours rather than rostered ones, which is where the surprise usually is.
Three things that quietly get left out
Each one is small on its own. Together they are the difference between a viable rate and an unviable one.
Travel and gaps between calls
Paid, unbillable, and highly variable by geography. A tight round and a scattered one have very different costs and are frequently charged at the same rate to the same commissioner.
The cost of turnover
Advertising, interviewing, checks, induction, shadowing, and the productivity of somebody new. If your turnover is high, this is not a line item, it is a structural cost sitting on every hour you deliver.
Utilisation, not capacity
Costing against the hours you could deliver rather than the hours you actually do. Cancellations, hospital admissions and voids all reduce the denominator, and the denominator is what the rate has to cover.
How to work it out properly
One afternoon, a spreadsheet, and your own last three months. Not a benchmark from a trade body.
Take a real period, not a model. Three months of actual payroll, actual delivered hours, actual costs. Averages and budgets hide exactly the variation you are trying to find.
Divide by delivered hours, not paid hours. This is the single change that moves the number most, and it is the number that matters, because delivered hours are what generate income.
Split it by package or round. A single blended figure conceals which work funds the business and which work drains it. The split is where the decisions are.
Then compare it, one package at a time, to what you are paid. Some contracts will be comfortably above, some marginal, and usually one or two below. Knowing which is which is the whole point of the exercise.
If the answer is that a contract loses money, that is information rather than a verdict. There may be sound reasons to keep it — density, a relationship, a route into more work. What is not sustainable is carrying it without knowing, which is the position most providers are in before they do this properly.
Rates and thresholds are not stated here
Wage floors, employer contribution rates, pension thresholds and holiday entitlement all change and all vary by circumstance. This guide names none of them deliberately.
Take the current figures from the official sources and from your accountant, and put your own numbers into the method above. A cost model built on somebody else's figures tells you about their business, not yours.
Ring us before it is urgent. It is a much shorter conversation.
Thirty minutes, no charge, no obligation. If you suspect some of your work is unprofitable but cannot prove which, that is a very solvable problem.
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07426 919823If it is easier to write it down than say it out loud, send a message.