When increasing your billing rate, what guidelines do you use?
We are a small startup and have been serving clients for about a year. We started very simple in terms of a fee structure (less than 8 hours per week, more than 8 hours per week, and 24 hour care). We pay more than our nearest competitors and charge slightly less for most services. Wondering how other agencies have structured their billing rates and what a realistic rate increase percentage would be? An across the board rate increase or adding more categories of rates? Raising rates for only new clients or existing clients as well? Curious what how others have approached this. Thanks for any input/insight that you might have!
1. Your target gross margin – We like to see 40% gross margin in private pay.
2. Your billing rate philosophy re: your competitors – do you want to be low, middle, high?
3. The availability of caregivers in your local market – what do you need to pay to attract the very best caregivers?
Once you know what you need to pay to hire great caregivers, you can calculate the billing rate using your target gross margin using the "Billing Rate Calculator" from The Academy for Private Duty Home Care. This is a spreadsheet that starts with your hourly pay rates, adds in your FICA taxes, unemployment, workers comp, and any benefits.
They you plug in your target gross margin % – we suggest 40% – and it tells you what you need to charge. Then you test this amount against your competitors and your billing philosophy and set your new rates.
When raising rates, we suggest you apply the new rates to new clients, and keep current clients at the old rate. If there's a big difference, you can raise rates on current clients, but be prepared to lose some.
What is your experience with raising rates? Leave your comments here, or join our Linked In Group.