What’s up everybody? It’s Steve The Hurricane here with another exciting episode of “A Drink With The Hurricane”. Today, I’m gonna go over the 2020 industry numbers on profit loss statements. This is something I’m very passionate about for you as the entrepreneur, to making sure that you are going to be set for success for the longterm going forward. So I hope you got a notebook and a pen.
Get your cup of coffee or beer or tea or wine, whatever you’re drinking. Raise your glass and cheers. Let’s get this started. All right, my friends. So 2020, obviously, was an interesting year and I’m not gonna, I don’t need to talk about COVID because we all have been affected by it and there’s been enough talk about it but let’s just take a look at what we did last year and then how can we course correct so that we don’t repeat the mistakes that we made last year.
All right, because this was something that it’s actually scary to me and I feel real sorry for a lot of folks out there because things aren’t going the way that it should. And if we don’t make changes, we’re gonna run into some very serious challenges. My job in serving you is to help you to prevent making the mistakes that people are making every single day so you can work smarter, not harder. So let’s jump right into it right now. Now as you see on the computer screen right here, this is the profit and loss statement straight from Home Care Pulse. And by the way, if you haven’t picked up the Home Care Pulse report yet, you can use my discount code to save 25% off. It’s HURICANE, all capital letters, the number 25 and then a percent sign. So hurricane H U R R I C A N E25%, that’ll give you 25% off the full price and you can pick up your copy. I highly recommend it because there’s a lot of great content, information, articles, et cetera in there.
Now, as you look at this, they break these revenue ranges down simply into five different categories. You have your, I call this the beginner but believe it or not, a lot of agencies around the country, who’ve been in business for five years, seven years. They’re not over a million dollars yet. So I call this the under a million dollar group. Then this group right here, even though it says 800,000, you see the average person surveyed did 1.2. So I’m gonna call this the million to one and a half million group. Didn’t you have this group over here, which is pretty much a million and a half, all the way up to 3 million, the average person who is doing 2 million here. And then you have the 3 million to the 5 million.
These are like the leaders of the industry and the average person surveyed is doing about three and a half million dollars in revenue. And then you have your masters and the masters are the people who have mastered this business. They’re generating the most amount of revenue on average and your average master as can see, as I’m moving my mouse, did about seven and a half million dollars in total revenue last year. Now, as you scale down each of these, and I’m not gonna go through all of them because it’s self-explanatory, you can kind of see for yourself. I’m gonna really talk about the first group, this middle group here, and then we’re gonna talk about the masters. Now this first group, right over here, people doing less than a million dollars. Now there are some factors, again, a lot of folks got started last year, your first year out, you’re gonna spend a lot of money to get established, et cetera. But for every person that’s brand new, there’s probably two or three people who have been around for a while and they still haven’t broken a million dollars ever yet either.
I mean, just think about the United States of America, all small businesses, by definition, a small business, is considered a business that’s generating less than $5 million in total revenue. Once you break the $5 million mark by the United States government, you are recognized as what’s considered a mid-sized company or larger. You probably have a certain amount of employees, above 50 to 100 employees. You’re generating a certain amount of revenue, you’ve been established for all yada yada, so on and so forth. So of all small businesses in the United States generating 5 million in revenue or less, there’s 27 million small businesses doing that in the United States. Out of that 27 million, this is all industries, 25 and a half million are not generating a million dollars or more in revenue. To break a million dollars in revenue between a million and five million in revenue as a small business, that literally puts you in the top 5/6% of all small businesses.
So just put that into perspective when you realize just how many folks fall into this first category right here, which is why I’m spending the time going over it. So now on the computer screen, I’m gonna pull up my calculator just so we can calculate this. So you can see in real time, I wanna make sure you can see this and where I’m coming from with this. So I just opened it up and here you go. So here’s my calculator. I’m gonna make it little bit smaller so you can kind of see what all the expenses and things that I’m referencing are. Okay, so first line right here, this is one that’s dark and bold, right? It says total care expenses. So in this first group here, the average agency in this area is spending 65% of whatever they charge for services, compensating caregivers. Now, as you see on the screen, I’m gonna move this calculator a little bit more so everybody can see it. I just put it over here for a second, all right. So you see this includes wages, workers’ comp, benefits, payroll, taxes, reimbursement, yada yada yada yada, right? 65% right off the top to the caregivers.
Then everything in caregiver recruitment and retention. Ads, background checks, retention bonuses, onboarding yada yada yada. At this group over here, it’s 5%. So let’s add five more to it, that puts us at 70. Now you go down to sales and marketing expenses. People over here are spending more percentage than they probably should, what is what you have to, to really get things going. The small business administration recommends that folks spend 7-8% of their total annual revenue on all things sales and marketing to scale and grow it, until you reach 5 million and then that percentage should go down, which even the masters are doing the same over here. We’ll get to those folks in a second. But the industry average for people doing less than a million is about 9%, which brings you up to 79%. And then last you have your operating expenses.
So your rent, your office, your executive teams. This is all of your team, and not including the owners, scheduling software, if you’re part of a franchise, you have a royalty, association, membership, travel, entertainment, meals and other operating expenses, not including the owners salaries, 39%. So 40% actually but I rounded up on the other. So let’s round down here. And look at this. 118% of the revenue generated last year for people under a million dollars, you literally spent 20% more than what you generated. If that is not screaming alarms, bells, and whistles to you, I don’t know what else to say. You have got to make sure that you are raising your rates. You are putting too much of a percentage, not dollars, too much of a percentage here and probably down here as well. There’s too much. This tells me that someone’s spending this much in their office staff, you have way too many staff members for your organization right now because you don’t have the revenue to support it and you’re spending too much in percentage compensating because you’re not charging enough to your patients.
Let’s jump over here to this middle group, all right. Let’s do this real quick. So these folks, they are at 64% for their caregivers. 3.2%, so let’s just do 3% for their recruitment costs. Then we got 5% for the marketing, which is where they should be, all right? And then you got 21% for your office staff. Actually let’s round up here, 21.8, let’s make it 22% because I rounded down on the others, right? That’s 94% of your revenue. That means in this group here, remember the average person in this group was doing $2 million in revenue. 94%, so quick math. Let’s just make it 95% because what’s 1% right. $2 million, all right. 95% means that you are spending $1,900,000 running your business. That leaves you with a hundred thousand dollars left over. That is a huge problem. That’s scary to me. You have a two million dollar business, and you only generated a hundred thousand dollars in revenue for yourself, maybe a little heavy on the office staff, but I’m gonna say 20% is right where you should be. I mean, look at the masters of our industry. They’re also at 20%, you’re at the right spot there. Where does something have to give? Right up here at this 64%, 65%, 64%, right off the top, that’s too much. It’s too large of a percentage. We’ve got to raise our rates, right?
Like I can’t stress this enough. And I know some people are like, Steve, I understand. I get, what I gotta do? You gotta have better sales processes. You have to have better sales. You have to have strong inquiry management skills, answering that phone because when you’re talking to a patient’s family and they hear 30, $35 an hour, in some markets, $40 an hour. I have clients in Minnesota charging $40 an hour for services. And you know what? They’re selling every single day. Every week, they sign up four or five new clients at $40 an hour. Why? Because they have the inquiry management skills on the phone and they have the closing process when they sit down with the families, even though they’re charging 3 to $4 an hour, more than everybody else. But when they’re charging $40 an hour, they can compensate caregivers 18 to $20 an hour and that’s only 50% margin.
That leads it to… So there’s a lot of profit where it should be, which is about 15 to 20%. At the end of the day when you add all these figures up and let’s just take a look at the masters just real quick to put it into perspective, right? The masters are giving away 68% of their revenue to caregivers right off the top. Seven and a half million dollars, 68% of it went to caregivers. Plus 2% for the recruitment. They’re at 70%. You go over here, 3% for the sales and marketing, which makes sense because 3% of $7 million is still gonna be about a half a million in revenue on all things sales and marketing, right? 3% of seven and a half million dollars, yeah, you’re knocking on the door of $500,000, right?
It’s probably been more like maybe $400,000 in total revenue spent on sales and marketing but it’s a $7 million company. And then let’s add that 20% for 20.5. So let’s just go 21% for the operating expenses. And they’re still at 94, 94%. So here you have this big seven and a half million dollar company, 94% of it leaves you with about a half a million dollars for yourself. A half a million dollars on $7 million in revenue. That’s what that leaves you. That’s mind blowing to me. It’s mind blowing to me. The margins aren’t where they’re supposed to be. If something catastrophic happens, these companies go out of business. A master… And let me stop my screen so you can just see me. A master of this industry is somebody who’s probably taking care of two, four, a hundred, a thousand patients and if their margins are that slim and something catastrophic happens and they have to go and spend a hundred percent, 120% like the people, or lower, on a totem pole, that company goes out of business.
If that company goes out of business, you have 200, 400, a thousand patients that have to get help somewhere else. 2, 400, a thousand caregivers that have to find work somewhere else. This is one of the most important “Drink With The Hurricane” episodes I have ever done to tell you that you must look at your P and L’s and if you are not generating, before you pay yourself as the owner of the company, if you’re not generating at least 15% as profit net net, after all your expenses, you run the risk of closing out your company. There is no room for raises for your staff. There is no room for increasing revenue to your caregivers.
There is no room for expansion, opening up other locations and continuing the mission and doing all the things that you wanna do and living the way that you’re supposed to. You’re the business owner. You invested tens of thousands or hundreds of thousands of dollars in your business to get it to where it is. You should be that profitable. Business 101 straight out of macro, sorry, micro economics, when I was in college, micro economics, economics, 101. The economics of a business should be operating at 15 to 20% profit margin, when all is said and done. Anything less, you run the risk of something happening. So what am I saying here? Raise your rates. You have to do it.
And I know it’s… Steve, you’re beating a dead horse, we understand, but you have to do it. If you’re not doing it, then you’re running a risk of eventually closing down your doors. And this is a high stress situation. How do I raise my rates? You gotta make sure that you understand how to answer that phone and manage an inquiry. You have to make sure that you understand how to sit down face to face and make a sale with somebody and get them to understand why you’re charging what you do. Value add value build. Hundreds of my clients around the country are operating at 15 to 20% profit margins because they got this. If you need help with this, this is why I am announcing My Home Care Millionaires bootcamp and you should come to it.
Right now our early bird tickets are on sale, it’s a thousand dollars to come to this event. Now at this event we’re gonna do three different things. Sales and marketing to keep an abundance of referrals coming in of patients with great need. So this way you have people who are coming to you who need 56 hours, 84 hours, 24/7 care, an abundance of those. We’re gonna talk about operational support. What are the things that I need to properly manage both my staff and my caregivers and my patients all three, so that I can retain my caregivers, get happy satisfaction results for my clients, which builds my reputation to get me more clients, as well as keeping my office staff from ripping their hair out and going crazy.
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