Net operating income is one of the most important metrics for a real estate-driven business. And senior housing is no different. Whether you're the operator or in the investment group you're going to be constantly tracking and measuring your property's net operating income. While there are many ways to increase revenue and decrease expenses on a building we've uncovered one of the most simple (yet difficult to solve) ways to drastically increase the NOI from your building: talk to more leads by increasing your "contact rate."
Talk to more leads? Sounds simple, doesn't it? Well not exactly.However, if you address this problem not only will you increase your top-line revenue but you'll also decrease your operating expenses and create a huge competitive advantage in the senior living industry. In this article, we'll break down how to make this happen.
What is Net Operating Income?
Net operating income is one of the most common metrics in any real estate investing. It gives you a high-level look at the operations and potential profitability of the property. The basic calculation of net operating income is:
Revenue - operating expenses = net operating income
When calculating the operating expenses you include things like property management, taxes, utilities, repairs, etc. However, you do NOT factor in debt service or the money that owe towards financing the property. For this reason, it makes it easy to separate the actual operations of the property from the terms of the financing. It gives you a quick look at how the property is being run and gives you an idea of how certain improvements to increase income or reduce expenses will affect the value. This brings us to another point about NOI in that it's used to calculate the value of the asset. By dividing NOI by the "Cap rate" or capitalization rate, you can calculate the value of the property.
In commercial real estate, you increase the value of the property by increasing the operations. If you generate more income from rents (or residents in the case of senior living), you'll increase the NOI and simultaneously the value of the property. This is very important obviously when it comes time to refinance or sell the property. Good real estate investors are constantly seeking to add value to the property by increasing the NOI. And they do this by increasing revenue and/or decreasing expenses.
The main way to increase revenue in the senior living industry is to increase occupancy, which is why so many operators and investors are constantly tracking their occupancy rate. To increase your occupancy you need more move-ins. In order to get more move-ins, you need to generate more tours and more sales opportunities. And this brings us to the simple thing you can do increase revenue and ultimately NOI: increase your contact rate.
What is a "Contact Rate" in Senior Living
Contact rate by our definition is measured by the number of leads that you actually make 1-to-1 personal contact with. That means when a new sales lead comes in asking: did we actually make contact with this person? (Ie did we have direct correspondence with them over the phone, via text message, or through a 1-to-1 email exchange?)
*Most senior living companies are very good at step 1 in the senior living sales funnel. However, we estimate that only about 1/5 of senior living leads ever make it to step 2.
You may not know this but in senior living, the average contact rate is incredibly low. Through running secret shops in 150 senior living communities over the past 2 years we estimate that the average contact rate is about 20%. That means that only 1 in 5 sales leads EVER get contacted. Effectively 4 of the 5 leads that your sales and marketing team has worked hard and spent money to generate, simply go to waste. There are a number of reasons that this number is so low that is not necessarily your salespeople's fault (that we won't get into in this blog post), but if you want to learn more download our guide to senior living lead response.
This may come as a shock to many senior living operators. This is because unless you have a sophisticated method of tracking your sales outreach and lead response, you will have no idea what your contact rate number actually is. We have yet to speak with a senior living company that has an accurate idea (that they can back up with data) of how many of their leads they talk to. Most will say they talk to about half, and the rest are bad, but really they typically are just guessing. It takes sophisticated software in combination with an automated lead response system to accurately measure it without human error. Without using technology we simply forget to manually mark every time somebody responds to a text, email, or we have phone call.
Why Contact Rate Matters So Much to Senior Living NOI
Your contact rate matters for a number of reasons. For one, the more leads you contact the more conversations you will have with prospects. The more conversation you have the more tours you can book, and the more tours you have the more move-ins you can generate. It trickles down to every sales metric. The next reason is that most senior living companies are spending money to generate leads. Its been stated in one study that a senior living lead costs on average $431 to generate.
If each lead costs $431 to generate and you never even contact 80% of them (the 1 in 5 number we mentioned before), then you are throwing a HUGE amount of money out the window.
It's one thing to not talk to a lead, but it's even worse to pay over $400 for it and still never talk to it. In our eyes, this is one of the biggest problems in the senior housing industry that hardly anybody talks about and the problem that we've chosen to help our clients solve.
How to 2x Your Contact Rate within 90 Days
All things being equal if you double your contact rate and you'll double the number of tours you book. If your salespeople close the same % of tours into move-ins, if you double your tours you'll also double your move-ins. For this reason, we think that the goal of doubling your contact rate is more than worthwhile, it's a potential game-changer for your business. However, in order to do this, you're going to need to implement 2 things: technology and a proven process.
*Above is an example of an outbound follow-up cadence or "process". At NextWave, we implement tested follow-up cadences that work for senior housing leads and customize them to our client's brand and style. To make a cadence scalable and repeatable we leverage technology.
Technology because it's not possible to do the 6-8 touches that are required to contact a lead without using automation. I mean, you could do it, but you'd need a warehouse full of staff working around the clock. By leveraging automation one person can do the job of 6, and you'll be able to send follow-up emails and texts to prospects at any time of the day 24/7, 365. You'll also be able to create tasks for your staff to call on the appropriate days that they can easily follow and execute. You can set up a cadence to have certain tasks executed on specific days and you track and measure everything. By leveraging technology and automation you also ensure that your messaging and wording are consistent with your brand and don't need to be recreated each time. In other words, you can message prospects at scale without losing any quality or brand integrity.
The process has to do with the cadence of tasks I referenced in the previous paragraph. The process refers to the sequence of calls, emails, and texts that occur to generate the desired response: in this case making contact with a prospect. Unlike doing lead responses on an individual basis with your sales staff, a process is a system that can be tweaked, measured, and improved over time. If a certain text should go out in the evening vs the morning you can test and measure that. If the wording of a subject line in a follow-up email gets a better response than another you can test and measure that. If calls made at 11 am are more likely to be successful than calls placed at 3 pm you can find that out and add it to your system. A system is progressive and gets better over time. It's repeatable and scalable. To do lead response on an ongoing, sustainable basis, while keeping (and even improving) the quality, you need to follow a process. It's simply too complicated to leave up to the human error.
Ready to Take Action and Do Something About It?
At NextWave, we help senior living clients set up lead response systems so that they can generate 2x tours from inbound leads within 90 days. Guaranteed. We're able to offer a guarantee because we know the tools and have built the process through years of trial and error in the senior living industry. We know what works and have proven templates that we can customize for your company to follow. If you're interested in increasing your contact rate, booking more tours, and ultimately increasing your NOI for the long run schedule an intro call with us today. We'll walk through our process and show you what's involved in onboarding a community for a 90-day trial period.