Many senior living providers utilize amenities and services to help distinguish their communities from the competition, particularly in the current market. Those same amenities can also silently wreak havoc on revenue and quietly drain cash flow if they are not priced correctly. In the currently market, senior living providers strive to provide the best care and services to current and prospective residents while operating on a tight margin. It is vital that senior living providers ensure that service and amenity offerings are priced to optimize cash flow, whether they are included in monthly rent or are priced on an a la carte basis.
Dana Wollschlager, Vice President of Senior Living Development and Operations Consulting at Plante Moran Living Forward explained that margins are getting smaller, and providers need to pay attention to this, especially because “residents are coming to us at higher acuities than we’ve ever seen before.” For example, Wollschlager and her firm recently helped St. Therese of New Hope, a nonprofit continuing care retirement community just outside of Minneapolis. St. Therese realized that it was losing money each month due to an inconsistency in the number of services provided to its residents, both independent and assisted living.
Most of the residents at St. Therese in assisted living have a services package that includes such offerings as assistance with daily living, escorts to and from activities, dining, housekeeping, etc. Conversely, the community’s independent living residents can elect to receive their services on an a la carte basis. The community realized that, though they had positive cash flow, St. Therese has been losing money over the past five years, but was unsure of the reason why. That’s where Wollschlager’s team came in. They began studying St. Therese’s operations and found that though they were making money on independent living services, they were still losing money.
St. Therese currently has seven memory care residents, on which the community was making $156,000 annually. But the community was also losing $957 per resident per month on its 35 assisted living residents. Wollschlager says that the problem here is that the community provided too many included services within the assisted living services package. Plate Moran Living Forward conducted an analysis of the services the community offered and the actual cost of providing them. Wollschlager’s team was able to identify some services where they were priced less than the actual cost to St. Therese. Her team broke down all services the community provided and assigned a cost – i.e. a home health care aide was approximately $0.30 per minute.
Time ended up being an extremely significant variable when weighing the cost of many of the services offered. For example, the community was losing around $0.27 per escort provided to residents to assist them with daily activities. The losses began to accumulate over time. “Basically, providers are selling time to residents. If they are not intentional about looking at what that time cost is, they can very easily start losing a whole lot of money,” Wollschlager explained.
As a result of the Plante Moran Living Forward analysis, St. Therese has increased the price of its assisted living services package by 17%. The community is now seeing increases in revenue and operating income. “For us in the non-profit world, for years now people have been going around with the mantra: no margin, no mission. But every business has to look at their margin and make sure they’re earning enough to cover their costs,” Mike Warden, Chief Financial Officer of St. Therese explained.
Contact Cambridge Realty Capital
Cambridge Realty Capital specializes in providing financing and capital for acquisitions and large-scale improvements to senior living facilities. For any questions regarding finance and capital for your Senior Living initiative, contact Cambridge Realty Capital.