If you are planning a new project, you are undoubtedly familiar with the importance of proper pricing. On the face of it, pricing your senior living community seems like a complicated tightrope to walk—and it can be.
As blue sky projects and expansions alike aim to balance budgets, the instinct is often to increase pricing when other costs surface. However, as many of us know, if pricing gets pushed too high, we risk losing valuable market share that was originally anticipated and is crucial to project feasibility.
So, how do you determine the right pricing for a project? While nothing can replace directly asking consumers through consumer research events—which reveal what your market wants and what people will pay—you should consider these three gauges:
1. Home values
A fairly detailed science behind Life Plan Community pricing actually exists, and a lot of elements go into it. The most important element for an entrance fee community to consider is home values because—as many of you know—today’s prospects are very reluctant to liquidate personal assets or stock investments just to pay a high entrance fee.
The key point here is this: The better alignment we have with home values, the greater the opportunity for a successful project. In particular, let’s say you want to offer a high-refund (e.g., 90% refundable) contract. Ideally, you do not want that entrance fee to exceed 120% or 130% of the median home value in the market. If the entrance fee goes higher, then for every bit higher it goes, you restrict the size of the market that will be willing to pay that much, thereby increasing the risk of the project.
Another factor is, of course, the competition. How is your competition priced and what options do other communities offer in terms of value? Organizations should look closely at that, too. You can start to think about value propositions relative to other options in the market at this point.
We believe that it’s okay to be the highest-priced product amongst your competition, as long as what you’re offering supports that pricing. Will your community offer contract options other communities don’t? Will your community offer a more robust service package than competitors? Will your community have one or two unmatched amenities? Ask these questions as you consider your pricing relative to that of your competitors.
3. Internal comparisons
Proper pricing also requires that you carefully look at how you price various contract options relative to each other. If you want people to select the high-refund contract option instead of a declining-balance plan, you need to have a relatively narrow gap between the two, with the premium for the high-refund option being no higher than 50% to 60% over the declining balance plan.
However, if you want to drive prospects to the declining balance contract, then the high-refund option should be priced 70% or more higher than the declining-balance option. Few prospects are willing to pay that much of a premium for a high-refund plan.
A lot of factors have to be juggled when determining pricing for a senior living expansion or start-up project. Understanding your community’s value, your competition’s value and the structure of your internal pricing can initially seem overwhelming. This is one of the reasons that Love & Company is a leading voice on team-based master planning for senior living, as well as a partner who will help ensure that the final product is priced just right for the consumers in your market.
If your organization is currently underway on a master plan or will be starting one soon, we encourage you to get in touch because the further the master planning process proceeds, the tougher it is to dial in that “perfect pricing.” Call 410-207-0013 today or click here to schedule a one-on-one consultation with Tim Bracken.