By Steve Moran
Here is what seems to happen: senior living operators talk to other operators, they survey the competition, and then they create a service plan based on one of three models:
- All-inclusive with maybe one tier, which is super simple.
- À la carte, which in some sense is the most accurate way to allocate costs in accordance with resident needs. It is a pain for staff to manage and residents hate the unpredictability.
- A number of tiers or levels of care, usually 3 or 4 based on an initial assessment and periodic changes over time.
Mark Anderson, Senior VP of Eldermark (a Senior Living FORESIGHT partner), recently told me a story about one of their senior living customers. The operator was opening a new assisted living community and they did a market comparability analysis that they then used to create their service and pricing model. Their collateral materials suggested that this service model was more or less a “copycat” of the competition and their building began to fill with resident customers.
So far so good . . . right?
However, a few months into the operation, even though occupancy and revenue numbers were at or above projected figures, they did not have enough cash flow to pay the monthly debt service. In theory a great community, but in reality: a failing business.
A few short months into operations, the provider ownership became quite troubled. The revenue coming in was not sufficient to fulfill their obligations to the bank. What went wrong?
The Copycat Problem
The provider reached out to Mark Anderson looking for help. (It is so easy to miss the value-added services that vendors like Eldermark provide or not to take advantage of them.)
An analysis of the operator’s financial model against the implemented service model yielded answers that were painful. Their “copycat” service model created monthly revenue gaps of $50 to $1,500 per resident just to get to a break-even point! When they included margin targets, the gaps were breathtaking.
A Second Case
Another customer brought Eldermark into the process early. They took a look at real costs for the market including their workforce wages, taxes, benefits, and overhead. And then determined exactly what it cost to provide one hour of care to residents. They then added the appropriate target margin. The result was a level of care service model that provided the right levels of care to residents and the right margins to the senior living community. Ultimately, it meant very healthy margins and a much higher capital valuation of the community.
Are You Cheating . . . To Your Own Detriment?
Operating as a copycat is kind of like cheating on a test. If you copy the work of someone else — even someone considered to be the smartest kid in the class — it’s still a roll of the dice as to the success of the outcome. It pays to do your own work, with your own reality, with your own numbers, with how you serve your customer and operate your business.
If you even have a tiny notion that your current service model is not giving you optimal results, give Mark a call to talk about how you might improve your position. Click HERE to schedule a demo.
To help you think about this Mark created a quick copycat questionnaire. Fill out the form below to download it.