Franchising Insight Caring for Seniors Is a Lucrative Franchise

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Demographics are driving the growth of nonmedical eldercare services. Find out what's involved in operating a franchise in this fast-growing niche.

For 10 years, Michael Melinger sat at a computer in the Chicago suburb of Skokie and sold tons of cold-rolled steel. These days, he's still in front of a computer in Skokie, but his product is compassion, and his inventory is composed of people--75 caregivers he schedules 24/7 to help elderly clients with basic tasks such as light housekeeping and meal preparation.

Mr. Melinger, 34, and his wife, Jackie, 35, are franchisees of Home Instead Senior Care, of Omaha, Neb., a company in arguably the hottest segment in franchising.

Entrepreneur magazine's most recent annual survey, released in January, found that the seven leading senior-care franchises had grown almost 39%, adding 370 new units between fall 2003 and fall 2002. While some types of franchisers scramble to recruit new franchisees, Home Instead's president Paul Hogan, says he's getting more than 400 leads a month.

One might expect that most of those leads would come from stolid social-worker types, older women with an affinity for the elderly who want a no-frills business that helps seniors with their daily tasks. But a few moments with Mr. Melinger show that taking care of the homebound elderly requires youthful energy. Home Instead's average franchisee is only 40, Mr. Hogan says, and one-third of the system's 463 franchises are owned by men who once held positions such as attorneys, restaurant managers or salesmen.

Filling a Big Gap

Mr. Melinger wanted a business of his own and was thinking of buying an existing Dairy Queen franchise when Jackie, who had managed nursing homes, suggested senior service instead. "We had patients who were living in nursing homes just because they had no one at home to help them with little things, like shopping for groceries and preparing meals," Mrs. Melinger says. "So Mike and I started looking at the demographics."

Which, of course, are startling. The U.S. has 35.6 million people over age 65, or 12.2% of its population, and we're getting older every day. By 2030, one in every five people will be at least 65. The couple spent a year investigating senior-care franchises, chose Home Instead and opened their franchise in a vintage office building in Skokie in April 2001.

"Our first clients were a couple in their 90s who wanted someone to come in and iron for a few hours a week," says Mr. Melinger. "It was a hot day, and the caregiver we sent returned drenched with sweat, complaining that the house had no air conditioning and that she'd never return to that pile of clothing, pillowcases, sheets and curtains. Which was just as well, because the woman had already called and fired us. It seems the caregiver didn't get her items crisp enough."

Fortunately, after only a few months, the franchise broke even and the couple began to recoup their $50,000 investment. Today they have three Home Instead territories and have two more offices, on the North Side of Chicago and in Park Ridge, a northwest suburb. The couple and eight office workers market their services to medical and senior centers and supervise 75 mostly part-time caregivers who assist about 80 current clients. "It's become a lucrative business," says Mr. Melinger. "But it's still not easy."

Crunching the Numbers

Home Instead and the other senior-care franchisees pay caregivers somewhere between $8 and $12 an hour and charge clients about twice that amount. In the highly competitive Chicago market, the Melingers charge clients $18 an hour, with a minimum of two or three hours a day, or $180 a day for 24-hour care. They also provide a "rise and shine" or "tuck in" service, for $200 to $280 a week.

The Melingers declined to reveal just how lucrative their business is, but FranchiseHelp, a consulting firm in Elmsford, N.Y., provides some guidelines for similar businesses. In 2002, for example, a franchisee of Homewatch Caregivers in Denver, with 60 workers, took in gross revenues of $1,265,324 and paid out $1,141,578 in expenses that included royalties and the franchisee's salary, leaving a profit of $123,746.

Finding caregivers is the hardest task. "This is a job the average, everyday American doesn't want to do," says Mr. Melinger, who recruits through newspaper ads and referrals. Forty-five percent of the people who agree to an interview never show up. And many quit within the first few days.

Staffing and Turnover

During a recent visit, training director Nikka Ginzburg held an orientation session for two new caregivers who had passed reference and criminal-background checks. Cindy Brudz, 42, says she wanted a few hours of work each week to fit in with her other part-time jobs while Germaine Mondo, 52, from the Congo, says she was looking for live-in work. Later, Mr. Melinger says that many of his caregivers are immigrants from Africa, Latin America or Eastern Europe who take live-in assignments and send their earnings home. They all, he adds, must be fluent in English. He also recruits college students, young moms, retirees and people like Sandra Ocon, 49, a grandmother who says she "loves working with seniors. I'll never get rich doing this, but I enjoy it, and I'm picking up some spending money."

Nationally, annual senior-caregiver turnover tops 50%. The Melingers have kept some workers for years, Mr. Melinger says, by providing a family atmosphere. Photos of caregivers, with clients or at the frequent parties the couple hosts for them, cover one office wall, right next to photos of the Melingers' three daughters. "Some people think this business is just about the money," he says, "but it really has to be something you want to do."

One client, a charming 90-year-old woman who lives alone, led a visitor through her sprawling ranch home in a Chicago suburb, filled with her collections of antique porcelains and glassware. "How could I take all this into a senior facility?" she asks. "I'm very independent and could never ask my neighbors to run errands or take me to physical therapy. Thank God there's a well-run business that can help a person like me."

Things to Think About

Before you decide to run such a business yourself, here are some factors to consider:

• Senior-care franchises work well only in areas with large concentrations of older people, says Jeff Bevis, vice president of franchise development for Comfort Keepers in Dayton, Ohio. "You can't do this in rural counties in Eastern Kentucky," he says. And the largest players, Home Instead and Comfort Keepers, have already sold off many of their best territories.
• Call current franchisees who operate in areas with demographics similar to yours, and contact former franchisees and ask them why they left.
• Be prepared to take personality assessments or sit through in-depth interviews. Senior-care franchisers can afford to be choosy. "We want franchisees who are optimistic, have a strong business orientation and great relationship skills," says Mr. Hogan. Home Instead accepts less than 1% of the 400 monthly leads it receives.
• Depending on what services your franchise provides, you may be subject to stringent state regulations, inspections and licensing requirements.
• While you may be taking care of seniors in your community, your real clients may be their adult children who live far away and call frequently--sometimes even daily--to check up on their parents. The phones at Melingers' Home Instead franchise rang constantly during a recent visit.
• Finally, the field is highly competitive. Besides a dozen or so franchises, an estimated 14,000 independent contractors also provide senior care, often at lower rates. If you have to lower your hourly fees to get business, those "lucrative" profit margins will quickly disappear.

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