By Fara Gold McLaughlin
If you are an investor or operator of seniors housing, you know the going rate for agency staffing. $37 an hour is the average hourly rate for agency nurses and CNAs across the country. The staffing agency is usually managing at a 40% margin — the same margins you want for your investment.
I painfully learned the power of margins when I became the division vice president of sales and marketing for the West Division of Brookdale in 2007. Our initiative was to integrate the three distinct operating groups under the Brookdale brand. The bankrupt Alterra portfolio believed the key to managing their margin was to cut expenses. The wise John Rijos, founder of the Brookdale brand, knew otherwise. Focus on the business value to grow the top-line gross revenue, and manage the expenses wisely.
In 2007, the very proud Alterra community and regional management operators believed their “53% margin,” as they often told me, was “good.” My reply was “53% of what?” These leaders were working in a broken and bankrupt model where they were focused on the wrong number. Week upon week of one-on-one meetings to help these operators, most of whom to this day continue to lead at many levels of seniors housing management, who could not wrap their minds around the meaning of NOI, or their net operating income.
Margin Math Class
As a division, my operations partner and I decided to host an all-executive meeting where I had to illustrate on a whiteboard the meaning of margins. When I placed a $1 at the top of the line to represent gross revenue proudly, the operators from Alterra said, “Yes, I have a 53% margin.” Then, next to the top line $1, I started another column with $3, and below it, I placed “45%.” Every operator’s head bobbed left to right, in disapproval, when I asked them which margin was better for Brookdale. They all said their “53% margin!”
Next, I had to help them do the math and asked our senior operator, “Would you be angry if our operators brought in 45% of $3 versus 53% of $1?” She said, “Folks, you are missing the point. If we invest in our community associates, programming, and delivering on the marketing, we can raise our rent and care rates and ultimately realize greater gross and net revenue.”
Again, the old way of thinking about margins resulted in scared executives adopting a new way of operating. Not by cutting expenses but by investing wisely and raising market rates, where even in the Great Recession we held the value of our rent and care to not erode our NOI.
Two Sides of the Coin
Today, as an industry, we continue to compete. As Beth Mace from NIC recently pointed out to the graduate students at Boston University, “Our competition is the home, with 89% of our market holding on to living at home alone.” The very seniors we are prepared to serve are willing to pay above $37 an hour, to often the three-hour daily minimum of $50 an hour, for home care. We all know what happens to these isolated and lonely souls the other 21 hours in the day; they miss their medications, burn their dinners, wander into streets, or simply languish alone in front of a television with no socialization or purpose.
You pay either way. Today it is agency staff with little loyalty to your brand and purpose. Today and tomorrow you will continue to pay until you realize the priceless investment in the very people touching the lives of your customers daily. They need their living wage.
Transform your thinking by understanding if you invest the dollars you are already spending to lift up the community caregivers, you are likely to have a community with a waiting list and higher gross revenue.
Now more than ever, your margin is the call between an agency or directly investing in your staff. The days of $10-an-hour caregivers are gone.