Director, Special Projects at MDS
More important than most realize. It seems as if senior living marketing teams are always chasing that elusive goal to fill just one more unit, but for very different reasons. First during fill-up, trying to hit the breakeven point. Then, adding those units that are going to lift the community to profitability. Then reaching that 90%-93% range and being able to take a deep breath. Now they want to push on and strive for 100% and that awe-inspiring waiting list!!
Unfortunately, once breaking that 90% barrier some operators cut back on marketing budgets and even cut marketing staff thinking it will be easier to maintain 90%+ than it was to reach it. The focus now shifts to just running on the preverbal “treadmill” of keeping up with the resident turnover rate. Increasing occupancy has become a pipedream. Hopefully the following will explain why it is so important to keep pushing for adding that “one more resident”.
Sometimes operators and marketing teams get so focused on occupancy rates that they lose sight of how very important that one additional move-in/resident can be to the bottom line. The opportunity lost/cost from a financial aspect is much greater from the “one more resident” perspective than just the loss/gain of a basis point of occupancy. That one more lead turned move-in can make an exponential difference to your community’s financial performance. Let me explain.
If you’re associated with a property that is operating reasonably well, it could have occupancy in the range of 90%-93% with an associated 30% operating margin. Meaning that 70% of revenue is spent on operating cost such as labor, dietary, utilities, property maintenance, and so on. This other 30% are earnings after expenses. Looking at the effects of adding that next resident you will see how your can invert your margins for that next new resident.
As an example, that inversion might look like this; only 30%-40% of the next resident’s monthly service fee will go to new expenses and therefore allow 60%-70% to go to the bottom line. The reasoning for this is that you will not necessarily need to increase your expenses at a proportional rate to add just that one or two more residents.
You will not have to hire another executive director, increase marketing personnel, add maintenance staff, pay any more property tax, increase insurance cost, increase other staffing, and so on. There will be some cost increases like utilities and maybe in raw food, but in most cases, there is usually enough taken into account in general meal preparation that another meal will not add that much cost if any. These ratios will vary depending upon your specific community’s occupancy, actual operating expense, and new resident’s care needs. Of course after you add a certain number of residents you will see more variable expenses needed to sustain operations.
Adding that next resident not only boosts (NOI) Net Operating Income/(EBITDA)Earnings Before Interest Taxes Depreciation and Amortization, cash flow, and excess margins, but it will also boost something we do not always think of, terminal value. Terminal value is the value of the property when it is sold.
It is a great idea to educate your marketing team so they understand the importance of filling just one more unit not only for the increased rate of occupancy, but for the ever important financial impacts. Filling that one more unit can be the difference between just breaking even and being profitable, between being mediocre and being very successful.
MDS can work with your community management and marketing team to not only help sharpen operational focus but to also enhance your marketing efforts. Let’s work together to ensure your communities financial success.