Focus on resident value.

Achieve success one senior at a time

PUTTING A PENCIL TO QUANTIFYING THE DOLLAR VALUE OF A senior's residency in your community may, on one hand, seem crude and insensitive. But on the other, it provides some simple, but very valuable strategic insights that can motivate you to: (1) reshape your operational perspectives, (2) sharpen your strategic focus, and (3) provide increased value and enhanced quality of life for each of your residents.

Most of us spend considerable time studying consolidated financial statements that reflect our total resident population. But how often do we really focus in on an individual resident? Let's look at some typical numbers -- you might be surprised at what you see.

A typical independent living resident might pay an average monthly service fee of $1,800 per month. With an industry average annual turnover of approximately 20 percent, the senior will live in independent living an average of five years or 60 months. The monthly service fee collected over this period would be approximately $108,000 (see "Lifetime dollar value," at right).

The net rewards to you after covering operating expenses would be approximately $48,600. This reflects an operating profit margin of 45 percent. That profit margin means that, alternatively, 55 percent of the monthly service fees collected will typically go to pay operating expenses of $990 a month. When spread over 30.4 days per month, that equals $32.55 per resident day for operating expenses, which is consistent with current industry benchmarks.

Keep in mind that if you also charge entry fees, you will realize an additional element of financial value from your residents. You will enjoy the use of interest-free capital, the non-refundable portion of the entrance fee, and the net gain on resale of the vacated unit. It's true that you may also be offering a life-care benefit, which certainly must be factored into the overall net cost of serving each resident.

And, if you offer a living continuum or have a continuing care retirement community, the lifetime value of your independent living resident could extend beyond their stay in independent-living as they make the transition from independent living to assisted living-with the possibility of also living in your nursing unit.

This may seem like an academic exercise until you consider some strategic implications. For example, the net independent living resident lifetime value of $48,600 translates into approximately $7 million for an entire community of 150 units at 95 percent occupancy. That's after paying all your operating expenses, so that $7 million can be used to pay off your mortgage, realize a profit, or fund your not-for-profit mission objectives.

And by focusing on individual resident value, everybody wins. The staff becomes more resident-centered, each resident will experience a direct positive quality-of-life impact and your aggregate financial goals are more likely to be optimized. That's because when you focus on delivering true value to each resident, you probably find ways to optimize other aspects of your operations. As competition intensifies, some desirable expected outcomes are to become a center of excellence and to be perceived competitively as clearly the community of choice.

Using the same approach for assisted living, we're dealing with higher monthly service fees and a shorter length of stay. With a target operating profit margin of 33 percent and a 67 percent operating expense ratio, this yields an allocation of approximately $1,765 per month for expenses or approximately $58 per resident day. Again, this is consistent with current industry benchmarks.

The net rewards for each individual assisted living resident is approximately $26,000-translated into an aggregate financial impact of about $1.9 million for an 80-unit community at 93 percent occupancy.

What if you had one staff member focus exclusively on enhancing resident quality of life? Yes, there's a cost involved - about $1 per resident day if you operate 150 independent living units at 95 percent occupancy. Can you find less than a 2 percent operating expense reduction within your existing operation? Or can you increase your future monthly service fees by approximately $30?

The innovative sponsors of the future will be those who redouble their efforts to serve their residents. And building community value by focusing on individual residents is a strategy whose time has come.

Jim Moore is president of Moore Diversified Services, a Fort Worth, Texas-based national senior housing and health care consulting firm, and author of Assisted Living 2000 and, his most recent book, Assisted Living Strategies for Changing Markets.

Lifetime dollar value.
                          Base monthly      Average
Living arrangement        service fee    length of stay
Independent living (IL)  $1,800/ month     60 months
Assisted living (AL)     $2,640/month 2    30 months
                         AVERAGE LIFETIME
                          FEE COLLECTED
Living arrangement            Gross            Net
Independent living (IL)      $108,000      $48,600
Assisted living (AL)           79,200       26,135
(1)Operating profit margin of 45% for independent living and 33% for
assisted living.
(2)Does not include ADL add-on charges.
SOURCE: MOORE DIVERSIFIELD SERVICES INC.