WHAT’S THAT LEAD WORTH, ANYWAY? Katie Roper, Caring.com Laura Kislowski, Solutions Advisors Jamison Gosselin, Holiday Retirement
Agenda ►
What is ROI?
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How Do You Calculate ROI for Marketing Programs?
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Lost Revenue: The Other Side of ROI
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How Do You Calculate Lost Revenue?
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Using ROI and Lost Revenue Calculations to Make Senior Housing Marketing Decisions
What is ROI? How much you spend to do something vs. How much you make from doing it
(Measured as a percent)
What You Need to Know
What’s a resident worth to you? Rent rate Care rate
Costs associated with each resident
Fully-loaded costs for each marketing program
Or company-wide operating margin
Average length of stay
LIFETIME VALUE
OPERATING PROFIT
PROGRAM COSTS
Formula for Calculating ROI Customer Lifetime Value (LTV) – Marketing Expense Marketing Expense
or: Customer LTV– Operating Expense – Marketing Expense Marketing Expense ASHA calculates – –
$77,000 as LTV of IL resident; average IL operating margin of 44% $88,500 as LTV of AL resident; average AL operating margin of 31%
Marketing ROI Calculation (AL Example) Average Monthly Rent Average Monthly Care Charge Average Length of Residence (in Months)
$4,000 $300 18
Lifetime Value of Resident
$77,400
FORMULA: ($4,000 + $300) x18 = $77,400
Referral Agency Percentage Cost of Referral ($4,000 + $300) x 0.85
Return on investment FORMULA: $77,400 LTV - $3,655 referral expense $3,655 6
85% $3,655
2018% = 20.18
or 2018% ROI
Translation:
7
ROI Calculation: Profit Average Monthly Rent Average Monthly Care Charge Average Length of Residence (in Months) Average Operating Margin
Lifetime Profit from Resident
$4,000 $300 18 31%
$23,994
FORMULA: $77,400 LTV x 31% profit margin = $23,994 profit Referral Agency Percentage Cost of Referral
85% $3,655
ROI Profit ONLY
556%
FORMULA: $23,994 profit - $3,655 referral expense $3,655 8
= 5.56 or 556% ROI
Translation
9
What If A Resident Moves Out? Referral Agency Percentage Cost of Referral Lifetime Value of Resident Average Operating Profits
85% $3,655 $77,400 31%
Number of referrals staying 18 months Referrals who stay 3 months
LTV of referred residents
4 1
$322,500
FORMULA ($77,400 LTV x 4) + ($4,300 x 3 months) = $322,500
Referral fees
$18,275
FORMULA: $3,655 referral fee x 5 referral fees paid = $18,275
ROI on Profit from all referrals
447%
FORMULA ($322,500 LTV of all referrals x 0.31) - $18,275 referral fees $18,275 10
= 4.47 or 447% ROI
Match Profitability to Marketing Cost Occupancy ► Up to 75% Occupancy
Marketing Program ►
– Covering Fixed Costs – Breakeven ►
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– Lowest cost
75% - 85% Occupancy
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– Covering Variable Costs – Low Profit
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85% - 100% Occupancy – Highest Profit Range
Keep Your Current Residents
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Word of Mouth Professional Referrals Your Own Marketing Referral Agencies – Higher cost, but higher profits to offset against
LOST REVENUE: THE OTHER SIDE OF ROI
Lost Revenue: The Other Side of ROI ►
Lost Revenue: What you don’t get when a unit remains unrented – – – –
Poor sales Inefficient marketing Under renovation Converted to other uses
Can’t Be Re-Captured!
Calculating Lost Revenue
Potential Occupancy – Average Daily Census Multiply by Average Daily Rate Multiply by Days in the Month = Lost Revenue
Calculating Lost Revenue Step 1: Calculate Average Daily Census Community Units Days in the Month Total Days that the units are occupied
100 31 2,640
Average Daily Census
85.2
FORMULA: 2,640 days occupied 31 days in the month
15
= 85.2
Calculating Lost Revenue (continued) Step 2: Calculate Average Daily Rate Total Units - Studios - One Bedrooms - Two Bedrooms
100 40, at $100 per day 50, at $125 per day 10, at $150 per day
Total Daily Value
$11,750
FORMULA: (40 x $100) + (50 x 125) + (10 x 150) = $11,750
Average Daily Rate $117.50 FORMULA $11,750 Total Daily Value 100 Units 16
= $117.50
Calculating Lost Revenue (continued) Total Potential Occupancy – Average Daily Census Multiply by Average Daily Rate Multiply by Days in the Month = Lost Revenue
100 units – 85.2 average daily census = 14.8 units vacant on average 14.8 vacancies x $117.50 average daily rate = $1,739 lost revenue/day $1,739 x 31 days = $53,909 lost revenue per month
Why Calculate Lost Revenue? ►
Why we don’t do it – Focus on budgeted occupancy numbers – Focus on monthly numbers, not aggregate – Focus on under-performing communities vs. entire portfolio
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Why it’s important – “Speak the language of Operations” – Understand the impact of sales concessions – Choose appropriate marketing strategies
USING ROI AND LOST REVENUE CALCUATIONS TO MAKE MARKETING DECISIONS