Well, it’s budget time once again. Time to reevaluate pricing, analyze trends, and build 2017 business plans, tactics, and strategies. Setting rates usually starts with an analysis of occupancy and vacancy by unit type; calculating rent, care, and community fee averages; evaluating current resident rates; and comparing competitor pricing.
Here are some creative senior living sales strategies to think about for 2017:
Value/ Premium Pricing
This strategy allows a pricing spread throughout the community, offering greater pricing elasticity to meet a wider range of financial options for prospects without eroding rate.
Select an equal number of…
- Value Apartments with undesirable locations (end of long hallways, upper floors); undesirable views (parking lot, dumpster, mechanical units); or with a lack of amenities (dark, small, limited closet space)
- Premium Apartments with a premium location (near elevator, on the first floor, near dining room, etc.); premium view; or with premium amenities (upgrades, closet space, square footage)
Set Value and Premium Rates
- Price the Value Apartments a dollar amount lower than the average rate per unit.
- Price the Premium Apartments a matching dollar amount higher than the average rate per unit.
- This creates three price points for each apartment type and leaves the overall rate unchanged.
Value/Premium Pricing is Most Effective With…
This strategy works well in communities with 10 or fewer vacant apartments with undesirable views, locations, or amenities that are not selling. This short-term pricing strategy does not erode rate as the additional rate gained in Premium units offsets the discounts offered in the Value apartments.
Much like paying points on a mortgage, the greater the upfront move-in fee, the lower the monthly base rent.
For example, for every $2000 more paid up front, the resident base rent is reduced by $200.
Variable pricing benefits:
- This gives the community good cash flow up front
- The advantage for the resident is that the investment is paid back within 10 months and all future increases are based on the lower rate.
This strategy provides solutions for prospects who:
- Have good liquidity from the sale of their home or from strong investments, but they do not have much income. (They can put up a large move-in fee and buy down their monthly price that is within their income range.)
- Have a strong income but do not have upfront cash (waiting to sell their home, money tied up in annuities, CDs, or other investments).
Variable Pricing is Most Effective With…
Rental CCRC/ IL where the length of stay is longest. It competes well against the buy-in model, as it offers control of the rate to the resident without requiring a large buy-in fee. It pays back the investment in the present where the buy-in model only pays back at the end of the stay.
It also works well in economically fragile markets where people need more options in order to create a financial solution. It also works well in more sophisticated metro markets where the buyer wants to be in control and is always looking for a deal.
This short-term strategy establishes a “can’t walk away from” price to move a volume of apartments quickly. Establish a defined time frame or a number of apartments offered to limit rate erosion. This approach trades rate for occupancy until the community reaches an occupancy percentage to turn the rate lever back on.
The best strategy is to identify a specific type of unit, such as studios, or a specific location, such as upper floor location that have been vacant for a long time.
Most Effective With…
Works well with communities under 80% occupied where the cost of vacancy outweighs the erosion of rate. This strategy also works with communities who are convinced that their only barrier is rate. Using volume pricing for 60 – 90 days will confirm or dispel the rate barrier theory. If no one buys at the volume rate, it’s not a pricing issue, so keep digging.