There is a general perception that in senior living (and most other businesses) the lower the price the easier it is to get move-ins and, conversely, raising rates makes it much harder for your sales and marketing team to secure new move-ins.
Faulty Thinking . . . A Case in Point
Many, many years ago I owned a 15-bed assisted living community that I sold to a friend. At the time of the sale it was fully occupied. Several months later we were talking on the phone and he was moaning about what a terrible investment it had turned out to be. They had a ton of vacancies even though they kept lowering rents. It just didn’t help.
I suggested that rather than lowering rents he raise them. He did and the building filled up. While on the surface this was counterintuitive, it actually made a lot of sense. What was happening was that family members were calling to get information and when hearing the rates were so low, they made an assumption that the quality must be terrible — so they moved on without even bothering to check out the community.
Once the rates were back in the range of normal for the marketplace, the tours came back and the move-in’s followed.
Pricing Is Relative
One would like to think that pricing should be based on logical cost factors that might include the cost of land, construction, furnishings and then coupling those amortized costs with the costs of operation including a profit margin, making it all work out fair and equitable. The problem is that consumers just don’t think about it that way.
When prospects look at your community, pricing is one factor (an important one). They then, at a conscious or unconscious level, make a very simple binary decision.
It’s Worth the Money or It’s Not
The factors that help them make that judgment call are different for each family but can include:
- Location relative to family members, medical services, shopping and other amenities and the general perceived quality of the location
- The size of units
- The types of amenities
- The friendliness of staff
- How attractive the dining services are
- The types of care and perceived competence of care staff
- The price of surrounding competitive senior living options
- The price and benefits of non-traditional senior living (home health, co-ops, independent living with companion services as opposed to assisted living)
- And significantly, the gravitas of one particular community over another. Do people in the local community see your community as better, cooler, more caring than other options?
No Experts . . . Yet
In the senior living industry we have experts in everything . . . market studies, land acquisition, building concepts, building designs, furniture and equipment, selecting staff, training staff, life enrichment, marketing . . . the list goes on and on and on. Just take a look at the list of vendors at any given trade show (more than 300 at the AHCA convention I just attended).
Until recently, we had no pricing experts, but this is quickly changing. In talking with Dr. Ahmet Kuyumcu, the founder of Prorize, a Senior Housing Forum Partner, he believes using real science and big data techniques, makes it very possible to get close to the optimal price for each unit in each community in each marketplace without guesswork – routinely and updated regularly.
His bold prediction is that in the next 5 to 10 years every major senior provider in the country will be using pricing tools like Prorize’s Senior Living Pricing Optimizer to capture the right balance of maximum revenue and occupancy. He gives examples from many industries, including the multi-family industry, where the first apartment that used the technology was Archstone in 1998 and then quickly spread like wildfire as a mainstream business discipline.
Pricing is perhaps one of the most single important decisions any senior living operator needs to make, both initially and on an on-going basis. It impacts all aspect of pricing and has huge meaning for asset value.
How are you figuring out your pricing today?