When is Cost is Too High?

Business owners are rightfully concerned about the bottom line. If you aren’t profitable, you can’t grow. Maybe more pressing, if you don’t make money, you can’t serve the people you are trying to serve, you can’t pay your employees…. you certainly can’t pay yourself!

So, it makes sense that when business people encounter new potential costs, they want to avoid them (no matter how small).

But what happens when the avoidance of perceived costs leads to avoidance of innovation and new solutions? When long term financial gain is sacrificed over fear of up-front investment? How does that effect long term goals, growth, finances, and values of an organization?

Examples of the consequences of short sighted or fear-based decision making in business are not hard to come by, and trust me, I’ve been there myself. It’s hard to look towards big goals and the future when you’re drowning in day-to-day tasks and bills are on the way.

Home or senior care organizations are frequently so buried in the sheer logistical behemoth of daily operations that it’s hard to take a breath and think. The result can often be rigid cost avoidance that ignores the consequences of the current situation and prevents implementation of effective solutions. Solutions that would, in fact, save the organization significant amounts of money, time, and energy. (Can you imagine what it would be like to have time and energy to spare…. As a home care business owner?!).

To better illustrate the point, I’m going to stop talking in generalities. Here is a typical example related to home care organizations. (These numbers are not from a specific business I’ve worked with, but rather, come from commonly occurring themes I find when speaking with home care businesses. You can plug your own numbers into the formula below to figure out how these issues are affecting YOUR business).

Let’s say a home care business has lost 10 clients in the last year. 2 clients passed away, 1 was sent to a hospital after a preventable fall and ended up in a long term care facility, and 7 left because staffing or care quality was poor or inconsistent.

Of those 10 lost clients, a full 8 were preventable losses. Now, let’s say the average number of hours/week each of those clients utilized was 15, and the amount going into the business after caregiver rate was removed was $12/hr. Here’s our formula:

Number of hours  x number of clients x hourly rate x weeks/yr  = ­lost annual revenue

15 x 8 x $12 x 52 = $74,880 lost revenue.

Now think about the average number of years clients usually utilize the service (likely with a growing number of hours as they need more care, but we won’t even get into that here). What if it’s 2 years. DOUBLE the lost revenue. 3 years? 4?? 5??? AND, WHAT IF the business loses on average 8 clients to these issues EVERY YEAR?

$74,880. LOST. REVENUE. EVERY. SINGLE. YEAR. COMPOUNDED.

You can see how the impact grows exponentially, until, quickly, we aren’t thinking about 10s of thousands of dollars, but rather hundreds of thousands…. Maybe even millions…

Now, what if the solution that would keep those clients with your organization existed RIGHT NOW? What if it could not only significantly REDUCE lost clients, but also other costly issues like caregiver turnover (Click HERE to calculate your yearly turnover costs)? What if the solution effectively outsourced one of the most logistically frustrating aspects of your business as well (ensuring high quality training for your caregivers)?

What would that solution be worth to your business? Do the above math and you’ll KNOW.  

Which, of course, brings us back to the original question at hand…. What is the ACTUAL impact of perceived cost avoidance on an organization? Would you spend $1 to make or save $1,000?

If this article struck a nerve, reach out. Emilia.bourland@aipctherapy.com

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