Profitability is sometimes considered a dirty word in our sector, but it is time to accept that this perspective is antiquated. The people we support are also our customers, and our customers have a right to choose a product that offers them value.

Let us address the moral issue first. The notion of deriving a profit from an essential human service is often assumed to involve “taking” from service otherwise received, but this is not the case. For example, consider the organisation that never adapted from the block funding mentality and operates manual and duplicated processes. This dated approach means they are one of the many organisations unable to make a profit in the NDIS and often fail to deliver essential services. Compare this to an organisation that has invested significantly in its processes and client experience. Their growth and investment have provided them with sufficient scale to offer all elements of the service agreement and derive a small profit.

In this case, the customer is better off being serviced by a profitable organisation. Indeed, there is nothing wrong with the notion of profit-making in the human services space. However, the issues arise when there are limited resources, and the organisation preferences its profits over their services. Secondary consequences occur if we consider the number of people in SIL who simply had no other choice but their current placement. We, therefore, offer two necessary preconditions for acceptable social profits. Firstly, customers must receive everything promised in the service agreement, which is implicitly captured in recognised expectations. Secondly, customers must have a choice that allows them to find a consumer surplus, or put differently, a positive difference between the value they enjoy and the cost of the product.

If we can make this commitment, is it even possible to make a profit under the NDIS disability support worker cost model (DSWCM)? Considering the financial benchmarking survey, we can identify that some organisations are making a profit. But we also see many organisations folding or exiting from the SIL market entirely. What is driving this difference?

The roster of care (ROC) model, SCHADS and the DSWCM essentially standardised 70% of expenses in the scheme. The cost of support worker employment varies little between providers, with many sticking to a SCHADS level 2. The actual volume of labour supplied is fixed to the ROC, with the QSC ensuring that providers only charge for the services delivered. That leaves us with two key considerations – supervision and overhead.

The NDIS benchmarking survey assumes that supervisors are paid at SCHADS 3.2 and have a span of control of 15 FTE. This is supposedly what the 25th percentile of most efficient providers can achieve. However, it is worth noting that the footnote of the survey indicate that 15 staff was the headcount, not the FTE. Whether or not this misinterpretation was deliberate is unclear, but it does significantly drive the span of control far beyond what is accounted for in the DSWCM.

The agency expects you to spend approximately 5% of your revenue on supervision. Empathia Group has seen cases where no supervision is provided to frontline staff, and this value is accrued. We’ve seen instances where a supervisor is paid at a SCHADS 4 or above and spans of control, are far lower than the prescribed 15. We also notice that the duties assigned to frontline supervisors vary widely across organisations. Given that this is such a core determinant of profitability and potentially competitiveness, we expect the sector to have this cost and responsibilities locked down.

Overhead is expected to account for 10.5% of your revenue, and we see very few providers, especially larger ones, who can achieve this level. In our observation, there is a critical point in an organisation’s size where processes simply fail to scale, and full-time positions are appointed to manage the process. We have also seen when full-time attention is not provided to a role, considerable scope creep occurs, with new tasks being added without reference to the organisation’s strategy or value chain. Once these processes are embedded, it is difficult to remove them without significantly disrupting the organisational culture.

Whether or not the size, shape and function of the organisation’s overhead are aligned with their strategy is, in our eyes, the core determinant of profitability in the scheme. The size of an organisation’s overhead is often emergent and unplanned. This is often in response to risk or behaviour that emerges from initially unforeseen services. This risk brings us full circle to strategy and positioning. We have seen that overheads can balloon when an organisation does not consider its segmentation and customer matching principles seriously. Having to backfill overhead positions because you’ve unexpectedly encountered a new set of needs will often disrupt your existing processes, and the new expenses will fail to scale.

Being all things to all customers is a risky path to inefficient overheads. Your front-line management expenses will be considerable if your staff cannot adequately service your customer base without constant supervision. If you need to introduce new processes for a small subset of your customer base, your overheads may expand faster than your margin.

We at Empathia Group believe that real choice has been missing in the sector for some time. Many offerings appear identical, regardless of the needs or interests of the people seeking support. We have often decried this as a fundamental lack of respect for the people purchasing services. In reality, the impetus belongs with the providers – eschewing real competitive specialisation doesn’t just disenfranchise customers, it potentially creates a set of conditions that eliminate profitability and value for the customer.

What kind of value would a customer receive if your training was specialised for a specific type of need? What kind of experience would your staff have if your managers were highly experienced in a particular kind of response? If you eliminated certain low volume processes, how much additional service could you provide to customers?

While the NDIS is complicated, especially SIL where it is the person receiving support at home, it is time for people seeking service to be offered real, genuine choices that provide great value. We believe that providing real value in this manner is the surest path to acceptable profits that will drive innovation across the sector.

If you believe in customer value and want to drive innovation in the sector – feel free to reach out to us for a conversation.

Consider taking our SIL viability survey if you want to assess your SIL business and receive a free viability and growth assessment.