Understanding the impact of the 8% NDIS commitment – where will providers feel the pinch?
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January 4, 2022
The SIL market is reaching an inflection point that will change market dynamics.
Our last article demonstrated that new customer growth is slowing in the SIL market. This article is number two in our SIL market series, and we will evaluate the total size of the SIL market and the implications for providers.
The two drivers of total committed supports are SIL customers and average SIL plan sizes. Total committed supports and the average package size are plotted below:
While the agency’s reports are information-rich, they’re not interpreted from a provider perspective. So we’ve broken down the implications of this for providers.
In a previous article, we demonstrated that a selected group of major providers enjoyed average growth rates of 28.3% in 2019/2020. Much of this growth was predicated on the SIL market, and many organisational plans are contingent on this expansion pattern. Below we show the inflation-adjusted growth rate of the SIL market since 2017:
This encroaching flatline gets even more interesting when you consider market dynamics. For example, there are currently 2099 vacancies listed on GoNest, which doesn’t even represent the total market for SIL vacancies. Suppose the vacancies expect revenue equivalent to the average plan size. In that case, there is a $727 million gap in the market that providers have been conditioned to expect that they could grow into (some portion is reflected by genuine customer movement). Instead, the market only expanded by $58 million in the last quarter when adjusted for inflation.
With SIL plans decreasing on average and the total number of people entering SIL grinding to a halt, SIL providers should begin preparing for the “new” market. However, it is not all doom and gloom.
The good news
Now and then, the agency releases a gem that gives a real insight into market behaviour, this chart shows 18-24 year old SIL movements:
What this chart shows is that the net customers in SIL barely moved in the 18-24 year old cohort. But what is fascinating is that the turnover rate was nearly 30%. So while the market isn’t growing like it used to, there is still an enormous opportunity to grow if you offer a great product. Customers are entering the market. They are just being netted off by customers exiting the market.
The takeaway is that market expansion ended, and incidental growth will likely end with it. We expect the total size of the market to remain constant or slowly decline. However, there is still an excellent opportunity to attract new customers. We are entering a zero-sum game where the providers will be competing over a static or declining customer pool. Is your organisation ready for intense direct competition?
We stress that this is good for customers and good for organisations with great products and know their path to market.
On growth
You’ve probably guessed that growth is important to us at Empathia Group. But we believe it is just as important for providers and participants. Firstly, vacancies are incredibly damaging to providers, given the expenses are inflexible due to fixed plan ratios. Our modelling suggests that the average vacancy generates an average loss of $65,000 in a 1:3 setting. Providers need a stable flow of customers to minimise their vacancies and perform acceptable placement matching and risk mitigation. Indeed, marginal growth can be dangerous in SIL, given the perverse placement incentives it creates.
Growth is also what drives scale. The NDIS Disability Support Worker Cost model offers providers a 2% margin and a 10.5% cost for overhead. As we’ve explored, overhead rarely scales continuously. It has discrete bumps that require revenue to “catch up”. It can be painful for providers to get caught in between overhead cycles. Some of the better overhead reducing systems require a degree of scale to deploy, or at least an expectation of growth to pass a successful business case.
Most importantly, we believe that when the best providers grow, it is in the best interest of NDIS participants. As discussed, scale facilitates the systems that offer our customers the best value. It also enables far better placement matching options, ensuring people can live in a comfortable setting of their choice. Finally, it is scale that influences the innovation cycle and fosters a surplus for providers to take risks with new products.
What can you do?
The businesses we work with know that the market is changing and are adjusting their plans accordingly. The have developed real points of difference and are leveraging them with their referral networks. They know packages are decreasing and they are working on their structure, models and value chain. Finally, they know that zero-sum is approaching, so they are optimising their intake processes to be fail proof and responsive. In short, they’re ready for the other side of the growth curve.
If you are a provider looking to grow in the new SIL market, why not take our SIL Growth Assessment. You will receive an obligation free report outlining your organisation’s current ability to perform in the rapidly changing market.
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