Live or Die: Rick’s Rule of 78

blogpic_billAnyone close to senior living operations quickly realizes that occupancy level is the core metabolism of every senior living community. Of course, unit sales are the heartbeat that speeds or slows that metabolism. All senior living operators also realize that achieving a regular, healthy metabolism in terms of occupancy levels is key to sustainability for the entire community. But few realize the power of Rick’s Rule of 78.

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Rick Hunsicker, Founder and President of Hunsicker Senior Living Services.

I learned this rule from Rick Hunsicker, a sales & marketing consultant as well as sales trainer well known in senior living circles nationwide. Rick realized early in his career that sustainability is only a baseline for an economically viable community. Soon he began to wonder about what would happen if you slightly accelerate occupancy on a monthly basis over an extended period, say, even a single year.

Rick discovered that surprisingly good things happen—very, very good things indeed.

He found that steady but modest sales acceleration transforms a senior community from a mere survivor to a “thriver”—from basic homeostasis to an athletic performer in terms of revenues and opportunities. By applying the already-established business axiom, the Rule of 78, to senior living, Rick crystallized a dynamic principle that few believe at first glance—but everyone eventually concedes is true. Here is a brief explanation of Rick’s Rule of 78 for senior living (refer to graphic of chart as well):

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 Rick’s Rule of 78 says that if you add one additional move-in each month for 12 consecutive months, you will realize a gain of 78 added months of revenue. That’s right.  If you start with a baseline of 12 revenue months in month 1, by month 12, adding one additional move-in a month, takes you to a cumulative 78 revenue months.  How much impact is that? Consider that if your monthly rent is $3000, you will realize a gain of $234,000 in revenues. If your model includes entry fees, you are looking at millions of dollars in added revenue—for that single year!

So now you have major new revenues—and greatly improved occupancy—all for a marginal increase in sales each month. Those revenues can be invested in renovations, staff training, better food service, cash reserves or better yield to investors—you name it. As always, there is one catch: where will those additional unit sales come from? It is a well-known adage that doing the same thing over and over again and expecting different results is one definition of insanity. So you have to add a new activity to create change.

The new activity is more and better marketing and sales. That means getting more leads through effective advertising, direct mail, social media, web and PR. It also means achieving a higher rate for conversion of those leads to actual sales by better-trained salespeople. The good news is that the cost of these enhancements to marketing and sales can be done for a mere fraction of the additional revenues you gain under Rick’s Rule of 78. Let’s do the math together.

If you added $5000 a month for marketing/PR and averaged $1000 a month for sales training, you have added costs of $72,000 for the year. However, you have just primed the pump to gain $234,000 a year (at $3000 per month per added unit sale). You might even reasonably expect to exceed the additional unit per month. So you have, on average, invested $72,000 for a (conservative) net gain of $162,000.

I should add that if you lose one more sale per month than you did last month, in a single year, you have Rick’s Rule of 78 working in reverse. So where does the real risk lie? Is it in investing a smaller sum in marketing and sales to gain a near 3-1 payback, or does it lie in staying low-profile and looking at not spending on marketing and sales training as an exercise in revenue enhancement? You decide.

By the way, the money spent on marketing and sales training has a residual effect that carries on well after your first year of expenditure. Accelerated brand awareness and the leads it generates are already in play, and your sales training remains with your staff—although both assets need continued investment to maintain and grow. Also, those new occupants are now ready sources for referrals by word-of-mouth, so keeping the sales pulse beating is much easier—and occupancy accelerates even more.

Which reminds me of another proven principle: A body in motion tends to stay in motion. 

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