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The Cost of Acquisition versus Retention in the Assisted Living, Home Support, and CCRC Industries

"We have to fill our apartments!" "We need to have more clients purchase our services today!"

Our focus in today's market is primarily geared towards acquiring new clients rather than retaining existing clients. When a sales and marketing budget is established, organiations in the Assisted Living, Home Support, and Continuing Care Retirement Community likely dedicate zero direct dollars to current customer retention beyond normal operating expenses.

This should change immediately!

According to customer acquisition research, it takes on average five times the cost to acquire a customer than to retain a customer.

For example, when I was in charge of a portfolio of 16 senior living commuities, the calculated average cost for a new lead was $200 and for a move-in $2000, with the average cost of move-in for our continuing care retirement communities running closer to $10,000 per move-in. And what was the cost of retaining a current resident? This was never directly calculated.

A 2% increase in customer retention has the same impact as a 10% cost cutting effort.

In general, according to an American Society of Quality study, companies lost customers:

  • 68% of the time because the customer was turned away by an attitude of indifference by the service provider
  • 14% customer dissatisfied with the product or service
  • 9% customer lured away by a competitor
  • 3% customer moves away
  • 1% customer dies

In our industry, the last reason may be more prevalent, but the importance of retaining a customer for as long as possible remains critically important.

According to NIC, 4th quarter occupancy for Independent Living rates fell to 88.2% from 89.8% in the previous year. The average monthly per apartment fee in the 4th quarter was $2659.

Assuming a 100 apartment complex, the annual vacancy loss calculation relative to the 88.2% occupancy is valued over $376,000. Just having one apartment fully occupied versus not is nearly $32,000 for the year. If one applies a 30% operating margin, for a single apartment, this equates to $9600 in lost operating margin for every apartment that lies vacant for a year. This then becomes the amount one could hypothetically spend before losing money on an effort to retain an existing client. However, providers today typically do not allocate any direct funds for retention.

Some practical steps to retaining a customer include:

  1. Gauging the satisfaction of the customer with a ket focus on the answer to: "On a scale of 1 to 5, with 5 being the most willing, how willing are you to recommend this Community to friends and family?" Those providing a score of 5 are true positive advocates for your business. Those in the 3-4 range are appreciative, but not likely to promote. Anyone below a 3 should be viewed as a threat to your business.
  2. Asking customers, "what is one thing we can do tomorrow to increase your satisfaction with our service?" The answers here shuld give you a handful of practical steps that can be assessed, prioritized, and implemented to further engage with existing customers.
  3. Don't wait until the annual survey. Too many organizations rely solely on annual satisfaction survey information to garner customer feedback. By the time the survey is rolled out, collected, and the findings presented, much time has passed. Instead, weekly feedback should be acquired through surveys following key meals, activities and more. This helps improve operations and subsequently helps retain customers daily.

Often the best leads and ultimately new customers come from current customers. The more engaged the current customer feels, the more likely they are to provide a referral. In one case, I have seen referral leads be literally 10 times more likely to become a customer than a general lead.

For assisted living, NIC reported 4th quarter occupancy feel to 88.2% from 88.9% in the previous year. The average monthly apartment fee in the 4th quarter was $3536. Assuming the same margins of 30%, an operator has even more financial leeway to create an environment that focuses on retention as well as acquisition.

In the world of home health aides, the average hourly rate in the United States is $21. Assuming an 8-hour a day customer commitment, this equates to $168 a day, or $1176 a week. The same approach applies. Take the margin available, encourage current customer feedback, and do what is suggested within reason to secure a longer-term client.

By focusing on retention, not just acquisition, providers will find and create greater loyalty among current customers that will translate beautifully into additional sustained revenues and profits over time.







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