November 9, 2012
To Discount Or Not To Discount?
For any nursing home, the rate of occupancy is a constant source of concern, and sometimes pride. Without a doubt, occupancy is one of the most important issues for nursing home facility operators, as it will significantly affect their profits and performance. With the number of Americans over the age of 65 expected to double between now and 2050, to approximately 90 million, competition between nursing homes will likely increase as well.
Experts differ when discussing the practice of offering discounts for senior living. While discounts can provide a large increase in occupancy, they can also impact the senior living facility’s profits if not implemented properly. Incentives and discounts can be the difference between the national occupancy average for senior housing communities, 88.6%, and a more profitable 91-92%.
The most common discount offered by senior living facilities is a reduction or waiver of the move-in fee, which will typically range from $2,500 to $5,000. The move-in fee reduction or waiver can be a very effective strategy, because it will entice new residents who do not wish to pay the, at times, large move-in fee. At the same time, the discount is beneficial to the operator, because it is a one-time discount. Operators do not have to worry about a constant assault on their bottom-line, and the loss of the move-in fee will likely be made up in the other fees earned from increased occupancy.
Similarly, some senior living facilities will offer a discounted rate for the first one to three months at the facility. This type of discount can be just as effective as discounting or waiving the move-in fee, as it will entice new residents and increase occupancy. In addition, like the move-in fee discount, it is very short-term and any loss from the discount should be made up from the increased occupancy.
However, operators need to be careful about offering too many discounts or discounts that are too large. Community- or facility-wide discounts can affect the manner in which current and future residents perceive the senior living facility. Dropping the rate for the whole community may undermine the value perception of community. Even if occupancy increases as a result, the lowered rates may prevent the increase in profits that higher occupancy should provide.
The key is offering non-permanent discounts or incentives, because they will eventually bring the community back to original pricing. In addition, communities should closely track the effectiveness of the discounts and incentives, to ensure a proper return.