Written by Ric Myers
When budget time rolls around or you are reviewing your profit and loss statement, how often are you asked to sharpen your pencil and crunch the numbers one more time?
So often we make budgets work by cutting expenses. What if we looked at boosting revenue instead? What if we weren’t satisfied with the industry standard for occupancy of 89% and pushed to fill our independent living and healthcare areas to full occupancy? What kind of difference would that make in our communities?
At ForgeWorks, we have a specialized tool that analyzes the significant impact that improving occupancy by just 1% can have on your bottom line.
Consider this scenario: A small independent living community with 300 apartments and cottages has an average occupancy rate of 87%. The entrance fees range from $65,000 to $450,000, and monthly fees range from $1,500 to $2,500. The CEO and CFO are happy with the current occupancy rate, but the Sales Director believes that by adding another salesperson, they can improve occupancy in the next year.
Is it worth investing in the extra staff? When we plug the numbers into our tool, we realize that we can quickly justify adding additional staff. Selling an additional three homes (moving occupancy to 88%) gains an additional $750,000 in entrance fees and $71,000 in monthly fees. If a new salesperson can sell an additional 15 homes over the course of a year (or move the needle by 5%), that nets $3,750,000 in entrance fees and $355,000 in monthly fees. This kind of occupancy growth is definitely worth the investment in another staff person!
In addition to the cash flow improvement, increasing occupancy boosts the sense of well-being for your existing residents, improves staff morale and generates additional interest in your community. Who doesn’t love a waiting list to move?
What about higher levels of care in the continuum?
The industry average for personal care/assisted living occupancy is right around 86%. Let’s assume this same small community had 50 personal care apartments and 50 memory care personal care apartments. Filling just one more apartment results in $123,000 in revenue. Hitting 90% occupancy nets nearly $500,000 in revenue. What an impact!
The impact of skilled nursing occupancy is even greater. The industry average for skilled nursing occupancy is 80%. Again, let’s assume this same small community has 100 skilled nursing beds. Filling just one more skilled nursing apartment increases revenue by $204,583. Moving occupancy by 5% in skilled nursing increases revenue by $1 million.
In summary, strategically examining occupancy at all levels of care and its impact on your bottom line can affect the way we move people through the continuum of care. You need the full picture to make the best strategic decisions operationally.
Creating a sense of urgency about occupancy makes a difference. If you would like a FREE analysis and a no-obligation call to see the impact improving occupancy can make in your community, please give me a call at 773.354.1596 or email me at [email protected].