Smart senior living marketing practices are vital to building your pipeline, increasing occupancy, and running a profitable community. We all can fall victim to several “myths” that can keep us from reaching our full potential. In this two-part series I am going to explore the most common issues I hear from senior living professionals and explain how to break down these myths and achieve your community’s goals.
#1: We don’t have the budget for marketing.
What is a new move-in worth to your community? You may have a lot of fixed costs (like real estate and staff), but the additional incremental cost of a new resident is likely pretty low. Maybe it’s as high as 50% of what they pay you, but I expect it is less than that.
Your biggest cost is real estate. For example, let’s say an average resident pays $3,600 a month to live in your community. Your costs when that resident is living there is about $1,800 (cost of additional staff hours, cost of food, etc.). If your average length of stay is 20 months, each new resident will generate $36,000.
Or to put it another way: Each empty room is costing you $36,000.
Have you determined what your marketing cost is to find and move-in an additional resident? If that number is under $36,000 and you haven’t filled your community, you should be spending more on marketing. Marketing dollars shouldn’t be a budget you spend. They should be examined closely to ensure your marketing is creating more revenue than it is spending. If it is, and you have empty rooms, you should be spending more – regardless of budget.
#2: Filling our community through word of mouth and walk-ins works best.
In the old days this was true. The way most people found senior housing was recommendations from friends or driving around the neighborhood. But the world has changed.
It started with young people using the internet to book travel. Then early adopters started buying books online. Then music and video. Every year those young people get a little older and they carry on with the habits they developed when they were young. They also share their techniques with their older friends and relatives. An 80-year-old today is more likely to use the internet than a 70-year-old ten years ago.
We all know the country is getting older and that is causing the senior living industry to grow. There are about 3% more 80-year olds this year than last year, so all things being equal we would expect demand for senior living to increase at about 3% per year. But internet searches for terms like Assisted Living are grew 15% per year. Five times the industry growth.
You might be filling your community with walk-ins and yellow-page listings now, but next year it will get 12% harder. And the year after that. And the year after that. If you start to reach the tech-savvy prospects now, you’ll be ahead of the game as more and more people begin their senior living search online.
#3: We can relax marketing spend when we’re near 100% occupancy.
Not if you want to maximize the potential of your community. Let’s say you were charging $3600/month, all of your rooms are full, and you’re not spending a dollar on marketing. Let’s say you have 100 rooms and fixed costs of $1.5MM a year and marginal costs of $1,800/month/resident.
You are in a pretty good place. You are bringing in ($3,600 x 100 x 12) $4.32MM in annual revenue. Your annual costs are ($1.5MM + $1,800 x 100 x 12) $3.66MM, so your annual profit is ($4.32 – $3.66) $660,000. Spending $36,000 to fill a room sounds crazy. In fact, can’t you just relax on marketing as you get close to 100% occupancy?
No, because you could do better. Let’s say you raise your prices by 10%. You now make $3,960 per resident per month (on the same costs!). If nothing else changes you now have annual revenue of $4.7MM and profit of $1.1MM. A 10% price increase almost doubled your profits.
Unfortunately it’s not that easy. When you raise your prices some residents move out to a cheaper option down the street. Your utilization might drop to 80%. Now your revenue and costs look like this:
Revenue: ($3,960 x 80 x 12) = $3.8MM
Costs: ($1.5MM + $1,800 x 80 x 12) = $3.23MM
Profit: ($3.8MM – $3.23MM) = $573,000.
Oops. You just lost $500,000 in revenue and $90,000 in profit. But you gained 20 empty rooms.
Let’s say it costs you $10,000 in marketing to find one additional resident (that’s ridiculously high by the way). Since a resident stays 20 months, you need to add a new resident every month to fill the 20 empty rooms. So you just added ($10,000 x 12) $120,000 in annual marketing costs, but now your community is full again. Your new revenue and costs look like this:
Revenue: ($3,960 x 100 x 12) = $4.75MM
Costs: ($1.5MM + $1800 x 100 x 12 + $120K) = $3.78MM
Profit: ($4.75MM – $3.78MM) = $972,000
So by raising your price by 10%, losing 20% of your residents, and then filling those empty rooms back up with marketing (at the cost of $10,000 per new resident) you have increased your profit by 50%.
If your community is full you need to raise your prices and increase your marketing spend to maximize the potential of your community. Maintaining those marketing channels, even when your community is full, will ensure that you have the ability to fill rooms quickly should the need arise.
#4: An online marketing consultant will help us reach our goals.
You are convinced it’s time to pay attention to internet marketing, but no one on your staff has experience doing it. When you don’t have expertise on staff the standard answer is to contract it out. Don’t have a lawyer? Hire a law firm. Don’t have an accountant? Hire an accounting firm. Why not just do the same thing for internet marketing?
That is what the industry decided to do in December 2013, but there is a basic problem: Agency Theory.
Your community wants to fill one bed a month from marketing. You’ve done the math and know that you anything under $36,000 in marketing cost per resident would still be a good profit-making decision, so you hire an online marketing firm and tell them not to spend more than $10,000. Hopefully that will be enough to get you an additional move-in every month. Sounds easy, right?
Consider that the agency charges you 15% on your spend. So you are actually spending $8,500 on marketing and $1500 on overhead. But how much effort will the agency give you? You are paying them $1,500/month or $18,000/year. From that $18,000 they need to allocate their fixed costs, the cost of their sales (to get your business), and their profits. That might eat up half of the money. What’s left they can use to pay for the actual employee who is going to spend your marketing dollars.
What type of employee will they get for $9,000/year? They will have one person working part time on your business. Maybe they find someone for $90,000/year and that person runs ten marketing campaigns for companies like yours. How much optimization do you think they are able to do a half-day a week?
The answer is not much. They are able to set up marketing campaigns that work and spend money, but there is basically no attempt at optimization. Ultimately, your marketing dollars are better spent with a pay per move-in referral service than with an outside marketing consultant.
I hope exploring Part One of The Truth Behind Senior Living Marketing Myths has been useful. Click here to read Part Two on Senior Living Insider. If you disagree with any of the conclusions please let me know in the comments below, or by tweeting me directly @Ednever. I would be happy to continue the discussion. If you operate a community and you don’t work with APFM but would like to understand how to get started, please reach out to our Customer Experience Team at firstname.lastname@example.org.