What methods do you use to calculate the results of your marketing?

By Pam McDonald

I try, but the truth is, I don’t do math. I cannot calculate a thing in my head and, beyond elemental arithmetic – adding, subtracting, multiplying and dividing – I’m at a loss. 

The funny thing is – even though I can’t do math, I love the stories it can tell. As a marketing consultant, I ask, cajole, beg, and plead with my clients to know their numbers; to do the math and understand the significance of the data they’re collecting.

Katie Roper, Vice President of Sales & Marketing for Caring.com, a Senior Housing Forum partner, just finished addressing this topic – What’s That Lead Worth Anyway? – at the most recent ALFA Conference. She and her panel shed some light on making math work for you.

Why do the math at all? After all, we all “know” what works and what doesn’t. But being able to produce numbers has the following benefits:

• allows marketers to ‘speak the language of operations’
• enables the sales team to understand the impact of sales concessions
• quantifies each marketing approach and allows comparison of tactics
• indicates likelihood of a positive result, which can produce better decision making on which marketing strategies are most appropriate

Equation #1: Lifetime Value

Before you do anything else, you need to know what a resident is worth to you. Not just what they’re paying you this month – “lifetime value” calculates the monthly rent they’ll pay you now, and six months from now, and 12 months from now. You can work out average lifetime value for your residents by multiplying average rent rate times average length of stay, or you can use the average value of $77,000 calculated by ASHA.

Equation #2: Return on Investment (ROI)

Katie did me – and maybe you, too – a huge favor by providing a “Worksheet for Calculating Return on Investment,” (which you can download here). With this tool, we’ll never have to memorize the formulas again. The worksheet has blank boxes to fill in with the needed figures, then explicit directions for calculating each step.

Knowing what you stand to gain (by way of revenue minus the cost of the marketing activity itself), you have one measure for deciding whether or not to undertake specific marketing approaches. Or, as Katie explained, “It’s knowing how much you spend to do something vs. how much you make from doing it.” ROI also can be used to compare different types of marketing activities; that is, a direct mail campaign v. the purchase of an ad v. working with a referral agency.

Equation #3: Potential Lost Revenue

Looking at what you stand to lose is the flip side of ROI. It shows you what you don’t get when an apartment remains unrented. The formula for calculating your community’s lost revenue follows:

Total Potential Occupancy
– Average Daily Census
x Average Daily Rate
x Days in the Month
= Lost Revenue

An example: 100 units

– 85.2 average daily census = 14.8 units vacant on average

14.8 vacancies x $117.50 average daily rate = $1,739 lost revenue/day

$1,739 x 31 days = $53,909 lost revenue per month

While it’s good to know the value of each move-in, Katie was quick to point out that some move-ins are inherently more valuable than others. She noted, “Up to 75% occupancy, a community is just covering its fixed costs; it’s breaking even. Occupancy at 75% to 85% covers fixed and variable costs with maybe a small profit. The most valuable of all are those move-ins that bump occupancy to 86% and higher. With very low additional expenses, revenue from these move-ins is almost pure profit,” she stated.

Return on Marketing Investment (ROMI)

This concept – also called Marketing Investment Risk – has been getting more attention since the 1990s. It takes into account that money spent on marketing isn’t the same as other operational expenditures. Marketing spending is more of a risk than an investment.

Your own community’s experience with various marketing approaches will help you determine how risky that strategy. But, as Katie noted, “Caring.com charges on a pay-per-move-in basis. So if a lead from us doesn’t generate a move-in, it doesn’t cost you anything.” The risk to the community is completely eliminated. “And,” Katie continued, “one of the best times to use our service is when your occupancy is over 85%. You’ll be taking no risk to increase your census at a time when each move-in earns greater and greater profit.”

What methods do you use to calculate the results of your marketing?