Why Occupancy isn't the Best Metric to Determine Success

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High occupancy means nothing. If your NOI is suffering, it's time to shift our mindset and lead with financial confidence. Hi everyone. It's Erin here. Your person who gets it senior living. Leadership is always about taking care of the residents and your team, but it's just as important to take care of the business that allows us to serve them. So here's the problem. Too many leaders step into their roles without the financial training or confidence that they need to make strategic decisions that drive long term success. If you've ever felt lost in a budget meeting, struggled with NOI versus occupancy goals. Or wondered how to tell your community's financial story. You are not alone, I promise. In today's episode, we're breaking down financial literacy for senior living leaders. Why it matters, how to master it, and how understanding your numbers can make you stronger and more respected as a leader. So let's get into what I believe is a financial disconnect, let's start with this simple question. When was the last time that you looked at your NOI or your budgeted occupancy, your rent role, or your general ledger before the end of the month? If the answer is never, I'm glad you're here. If the answer is sometimes, I'm glad you're here, and if the answer is all the time, we should talk because I think it would be fun to know what you know and to learn from you as well. But for those of you, who do you understand the value of, of knowing your community? Right? We've got to understand our community story. All of it. The relationship piece, the regulatory piece, and the real estate piece, which is the business side of things. Our occupancy matters. lemme just say this, I made a post about NOI versus occupancy on LinkedIn, and so many people have asked me about that post, and honestly, I felt nervous because I didn't want to post that post. Because I don't really talk about the financial side of things as much, but I did it anyways because it is a valid question. I didn't realize how many people, thought the same thing or had the same questions and wanted to know people's responses. Here's, here's the, the rub is everybody talks about occupancy. Because that's the number that we tell everybody, right? Like occupancy is like you driving the brand new Lexus or the brand new BMW and you're paying$1,200 a month for it, right? I mean, that's flashy. You drive a beautiful car, but you are paying for that significantly every month. And I'm driving a 2015 minivan with 216,000 miles on it. But my NOI, you know, my monthly rate, monthly car note is zero. So occupancy is flashy, but money in the bank or less money going out per month is where success lies. Believe me. I'm building a business, so I don't have a lot of money in the bank, but I do have less money going out because I drive a vehicle with no payment and it hasn't had a payment for a long time. I digress. But that is the difference between NOI and occupancy. I could sit here, I mean, if you're gonna see me driving, you're literally gonna see me driving a car. With the left bumper, I believe is where I ran into my culinary director's vehicle on a very stressful day. I was full of anxiety and I was reversing in to unload some things that I got for the kitchen and I accidentally hit her vehicle. I fixed hers. I did not fix mine, the other side of my bumper. I accidentally grazed my husband's truck in the driveway. You know, it is what it is. And then there's a little tiny bump on the hood of my van because as I was driving, back home one day, someone's tire decided to blow and a huge chunk of it landed on my hood on the interstate, going somewhere between 75 miles and 85 miles per hour. I was lucky that it didn't hit the windshield. Anyways, I haven't gotten any of those things fixed. I just feel like authenticity is what it is, and I haven't gotten a new car because I value my 300 to$500 a month. It's not going out right now. And that's how we have to look at occupancy versus in oi and honestly the about financial literacy inside of our communities. I mean, it's, it's really defining what success is. Success to me is not having a car note at this moment, but let me tell you what success is going to be. Either getting a Volvo from the actual plant where I get to pick it out and then travel overseas to go get it, which lemme tell you, is fabulous. This, the idea of doing that is fabulous. Or I just saw Lexus five 50 the other day. I really fell in love with that one day. I am going to get that, but it's not gonna be today. And it's not gonna be tomorrow. And if I have to get a new car, I'll probably just get a new minivan because that's the stage of the life that I'm in right now. Because if my kids aren't gonna take care of it, I'm not gonna be paying for it. Right. So I. I say all that to say I am a relationship purist when it comes to senior living, but I also understand that this relationship piece of senior living needs to extend to money and business strategy. What does success look like to you? I have turned around four different struggling communities. They were struggling with regulatory issues, financial issues, reputation issues, all the things. There are phases in a turnaround of a community where you have to choose, do I get some short-term wins and build long-term strategy later? And that's a choice that you have to make with a corporate person. Not something that I would suggest that you take on your own unless you're the owner or you have other, don't have anyone else to talk to. But if you start slashing rates from 4,000 to 3000 for the life of the agreement, you are going to be down a thousand dollars a month. And if they are there for a year.$12,000 a year. And if you do that for five other people, that's$60,000 a year. That's the business side of things. And now lemme tell you something, I, I did this a lot. I will tell you, my grandmother lived in a community and they gave her an amazing discount. it was at the end of a month. It was probably at the end of a quarter. They needed the number and so they made a decision. This apartment has been empty for a long time, and they wanted the move-in rather than an empty room. And sometimes those are decisions that you make. You look at the budgeted rate for that empty apartment. You look at how much time that apartment has been empty and would you rather have.$2,000 instead of$0 for an apartment that's budgeted for$3,500 per month. Right? These are the decisions that you have to make, and hopefully you have somebody to help you think about it that way. I have gone through times in my career where I wanted to give everybody a discount because let's face it, I do have a bleeding heart, but you cannot do that long term. You cannot do that and expect to be able to answer questions at the end of the month of why we're not meeting our budgeted goals, and then your team starts suffering because we don't have enough revenue coming in to do the do all the different activities that you might want. So it's really, really important to keep the overall perspective of the community in the best way that you wanna serve residents in your community. rather than always focusing on getting a resident to move into a community, you can still feel good by giving short, burning incentives to move in. Paying for somebody's move into a community is an excellent incentive to move in, and it helps people. It's potentially 500 to a thousand dollars. I would certainly take somebody paying the movers to pack up my stuff and move them in right time over money. So just remember, you can still build relationships and have good relationships with the business strategy inside of a community. Leadership is not just about people. It's about business and numbers as well. We have to be good stewards of our residents dollars, our dollars that we are paying our team and that we can use to honor our team. Many leaders rise to the ranks because they excel at management or team culture and relationships, but sometimes when handed a budget. They might get confused. I will never forget, I was at the corporate office of the community that I was working in and I was called into. I was there for executive director training, which I had been working there for years already. Anyways, I was thankful for the opportunity. I got called into the vice president and. I don't know what the other position was. He was CFO maybe, I'm not really sure what his position was, but it was around budget season and I never really understood how the corporate level looked at creating budgets because the budget for my community was always off. and there were times where I had say in it, and then there were times that I did not. Then they called me into the, off into an office and asked me questions because I was there and they were speaking about this budget in terms and so fast, and I was nervous, and I'm looking at the budget on the screen and I have a million questions that I would ask, but because I didn't feel comfortable, I only said certain things. What I knew I needed I could only be as good as I could be in the moment, and I realized I wanna be able to read spreadsheets so fast and tell the story that these two people can tell, just like them. That takes time and intention. And to be able to be comfortable with the numbers, it's really, really important for you to realize that numbers in your relationship with the money is just as important as the relationship with your residents in your community team, family members and residents will move out of communities if they feel as if. They may close if they're not doing well. I worked for another community early on in my career that stopped paying their bills. We would get water cutoff notices and power cutoff notices. I. You know, we don't want that kind of experience for our, our residents and our team members. And so the more we know about the money, the more confident we are in talking and dealing with the numbers and knowing what we can cut and what we can't. Helps us create the story that we need to live and work by. When you don't understand your numbers, you lose credibility with both corporate teams and families. So the more you know, the better your relationships can be built over time, and you don't have to be a financial expert. You do need to be financially confident because you are leading a senior living community, which is essentially running a business. Your NOI is your community's financial pulse, okay? Your NOI is your total revenue minus your operating expenses, and that money is the money, is the revenue that you are generating. That's important to know. So if you're in OI goals or a hundred thousand dollars a month, that means that you have cleared a hundred thousand dollars and over 12 months. That's$1.2 million per year, and that means that you are an executive director running a business that is generating$1.2 million a year of cleared revenue. That is powerful stuff. As an entrepreneur, I don't make that kind of money. Maybe one day, but that's not the goal, although it could be. But as a executive director, I ran communities with that kind of in OI goals. I can confidently say that my community cleared over a million dollars. Probably for the majority of the time that I was an executive director there, meaning my leadership made my company anywhere between 5 million and$8 million for the tenure of my career. That is a powerful stat. And lemme tell you something I didn't know about that when I was inside the community. I didn't look at it that way. I didn't understand it that way. I looked at it as I had a monthly goal and I wanted to know how to answer questions on a variance report and make sure that I knew what I was talking about on a financial review call. I didn't understand the business side of being an executive director over a community. That had an NOI of over a hundred thousand dollars for the majority of my time there, honestly and transparently. I mean, the first year or so was just rebuilding that, but the only time I was ever in the red was during covid when we were, when we got down to, you know, below 70%. I remember clearly seeing negative numbers, and never in my career had I seen negative numbers. So there were times that were hard, but then we went from 67% to 100% in a year and one month from 2021 to 2022. I saw those negative numbers and I went, oh no, this is not who we are. And we kept going. So there are three financial concepts. Every senior living leader must understand to make informed decisions and gain credibilities for their financial discussions, One of them we've already discussed, but it's your NOI your net operating income, which is your community's financial pulse. NOI equals total revenue minus your operating expenses. This is what the corporate teams look at first to measure success. Okay. They wanna know what's your NOI every month? How are you controlling your expenses? Do you know about your expenses? Are you looking at overtime? Are you looking at agency usage? Are you able to talk about why you're needing that? Are you able to defend your actions as to why you can't hire people? Or can you talk about all the steps that you made to hire people to alleviate agency? This is a story I. Don't let the numbers scare you. The numbers help you create the story. Okay? One of my favorite leadership tips is to start reviewing your general ledger regularly. It's not to micromanage your team, honestly. It's for you to understand every month what you're billing for revenue, what you're generating revenue wise, and then what are the expenses. You look at it after payroll hits it. You know, you look at it, I, I used to look at the 401k piece, which I had no control over. I looked at the taxes, which I had no control over, but I just kind of knew what was going out and when, and so I found the rhythm of the community. Right. When you look at your general ledger regularly, you're able to understand trends and make informed adjustments. So number one, know your net operating income is the community's financial pulse. Number two, budgeting and spin downs. It's predicting versus reacting. Budgets are forecasts. They're going to tell you what based on trends and other types of communities, what your forecast should be, what your goals should be, but actual spending tells the real story. Biggest mistake leaders make is not tracking the actual spending throughout the month. And so what is the tool that we use to do that? Spend downs. Spend downs are just as important as the general ledger, and in fact, a spend down inside the community is, to me like the actual general ledger because we are seeing spending in real time, whereas the general ledger takes time to get put on it. So you can actually look at the general ledger and the spin down to see where we are in the moment. The spend downs are something that I would reference all the time when talking to different managers. The common question would be, can I buy this? And I would say, well, I don't know how much have you spent this month? And so then we would have a conversation about the spend down, and we would pull it up. The goal is to train your key directors to be able to use this spin down and make those decisions on their own. Or we need this tool, we need this technology piece to upgrade for this particular department, and here's what I haven't spent and here's how I can split it across two months. These kind of questions with solutions on the back end. Are brilliant, especially when they come from your team. I had amazing ways of learning how to divide things up into months just by looking at the spend out, and I don't wanna give you any like bad tips, but insider tip would be your credit card. Has a stop date. Typically, if it's in the middle of the month, you can, that's gonna go towards one month. And then if you use cash, that's gonna go towards another month, depending on the timing of when the credit card, closes out for the month. So there is an insider tip. Use discretionary, and two, you advantage and not to your disadvantage. Okay. Insider tip, don't tell anybody it came from me, right? But the biggest mistake that leaders make, not tracking actual spin downs throughout the month, use them. And if your directors are not using them, it's because you're not following up with them. You need this information. They need this information. This is a respect. A respect of people's money, a respect of financial literacy and confidence inside of the community. A respect towards your corporate office, who's entrusting you with this potentially multimillion dollar business? It's a respect tool. Use it, it's knowledge. It's empowering so your key directors don't have to ask you questions. They can figure it out themselves and bring to you a solution and say, here's what I want. Here's how I'm gonna make it work, and here's how it's going to affect the month. Boom, those conversations should make you very, very happy. Don't panic when you have to go over budget for expenses. I mean, it just is what it is. There's things that you can't control, right? Instead have data to explain why it happened and a solution to move forward. You know, if you have to replace the fire alarm panel or the air conditioner fan motor went out, you know, these things aren't always cap accessible. Sometimes they are, sometimes they aren't. Explain it, explain the variance. Then come up with a solution. And then one thing that I did year over year is I would write down these big over budgeted expenses. Like landscaping for some reason was always put in the wrong month when we got our color change. And so I would make a note and then around and a binder, and then the next. budget season, I would say. Can you please make sure our color is in budget is in April and October instead of May and August, right? Keep it in some kind of document, whether it's a binder or some kind of EOC or Google Doc or whatever that you use, that you can communicate these because the forecasting is important. And you're in the middle of it. Corporate office is gonna make these budgets and these decisions, but you are in the thick of it. And so when it comes to budget season, you can give them data, real time data. This would help if this was in this month versus this month. That's important. And when you have over budget months, explain it. The worst thing you can do is to not be able to explain it and tell the story. Alright, number one, for three financial must knows for every senior living leader was NOI. Number two is budgeting and spin down strategy, predicting versus reacting. And number three is financial communication and transparency. Building or breaking trust. Again, this is about relationship with money and numbers and one of the biggest. Areas to focus on building relationships and building trust is when we bill our residents. The billing, the generating of the statements is a very, very important process. And then the automatic withdrawal is also a very, very important process. The more that you are open and honest and transparent and hear people's complaints or concerns about the billing and the statement and the withdrawing process, it is very, very important because you're building trust. You are taking large sums of money out of somebody's account, and that money is directly your, is your monthly revenue coming in. So it's important that you keep the lines of communication and transparency open. Because it's easy for somebody to get mad at you because they weren't aware of how much money was coming out or that we double drafted their account, which has happened to me weird, but it did, or that it was overdrawn, and we have to have that conversation with the loved one. Or the resident itself. So being able to build relationships during the hard money conversations are really, really important. Build trust. Financial mistakes happen, but how you handle them and overcome them to determines the trust that you're building or that you're breaking. The other thing in communication and transparency when talking about money and building trust is having a strong relationship with your corporate accountant. To me, based on my experience, having your accountant be one of your biggest allies is very, very important, especially in financial reviews because they can give you a heads up of the questions that are being asked consistently. If you are on a list, you want to get off the list, that would bring negative attention to your community or your corporate accountant. Make them happy. Give them the re, give them all the reports that they need, get everything closed out in a timely manner so they're not waiting on you and ask questions. And when you're looking at your general ledger, ask questions with your accountant and help them. Let them help you understand how to read the general ledger in a way that that builds confidence, that you can start looking at it for yourself in a confident way. Okay? The key takeaway here is understanding NOI. Budgets and financial communications doesn't just help you. It helps your residents, your team, and your entire community succeed. So it's really, really important that you know what your community's financial pulse, your NOI, that you understand budgeting and spin the spin down, which is predicting versus reacting, and to keep an open line of communication with your families, your residents, and your associates and your key directors about budgets and, and billing and. Automatic withdrawals that could be coming out of their accounts hugely. It's very, very important. Okay. Back to the LinkedIn post that I did, NOI versus occupancy. What really matters? Here's the question, high occupancy does not. Well here. Here's a myth. We're gonna bust today. High occupancy does not mean financial success. Again, it goes back to the BMW brand new, shiny, awful lot versus, you know, a minivan that is making it right. Dave Ramsey, who I have followed. Will tell you that most millionaires don't drive the fancy BMW and that the most financially literate and successful people live well below their means. So occupancy. Doesn't a lower occupancy, an occupancy at 85% doesn't automatically mean that a community at 95% occupancy is making more money than a community at 85% occupancy because they could have been so desperate to get to 95% that they rented rooms at half the budgeted rental rate. Now I came into a community as a new executive director and that community had probably 30% of residents at an enormously below budget rate. I mean, the gap was wide and trying to rebuild from that. Is really, really hard. And the other thing is that residents talk and these residents who had these lower rates were residents who were healthy and independent and were gonna live and did live at that community for a very long time, a very, very long time. And I was happy for him. But every month I had to answer questions about why we were not hitting our NOI goals. I was speaking to another executive director recently who had moved to an executive director role into a community, and she was sharing with me and she was turning this community around that all of. Is a strong word, but a large percentage of these residents were paying well below the budgeted rental rate. And you can find that information on the rent roll. You are gonna look at what apartment is budgeted for what amount, and then you can actually look and see what the actual rate, the actual revenue that we're generating from that apartment. And that gap is the gap that you have to try to overcome. And this particular executive director was talking with me about how every month she has to answer the same questions because every month they forget that she came to this community with, let's just say 45% of the residents paying a thousand dollars or less under budgeted amount, and that's not that executive director's fault. She will have to answer that question continuously until more time passes and they're able to get more residents in at the budgeted rate. And that's why NOI matters, and that's why what we charge our residents matter. Are we true to the rate? Because the other thing that happens is this, and I have had this in my community where I've had. Residents who are paying$2,000 a month for a one bedroom apartment, which should be at that time, this was years ago, you know, around$3,800 a month that eventually we're going for over 4,000. And so that's an$1,800 a month difference. And so when somebody's moving in and they're paying$3,800 for the same apartment that someone else across the hall is paying$2,000 a month. What happens there? A lot of animosity, a lot of people who are upset because there's an$1,800 difference and now all of a sudden you have to explain why residents are going to talk. Family members are going to talk, especially when you have friends and family referring to your community Apartment rental consistency rate consistency is very, very important because that's building trust. It's building credibility. Again, the goal is to have a good occupancy with a healthy NOI and to be able to give incentives to move in that burn off quickly. It can generate the revenue that your business needs to succeed and to create a thriving community that has entertainment, that has fancy dinners, that has the opportunity to serve its team and its residents in a very impactful way. So I like to think of it that occupancy is the book cover. Never judge a book by its cover. Right? And NOI is the actual whole story. Just because your occupancy is at 85% doesn't mean that your financial health of your community is worse than the communities at 95%, because the whole story is what are all those residents paying per month to get to 95%? That's the good question, right? Concessions and discounts might fill apartments. But they create long-term financial challenges. If we're not careful and we use them as a crutch for too long. A good sales director, a good executive director, knows their community story and can build the value of that community and why somebody would wanna pay that monthly rate. Because if you discount everything, what is the true value of your community? What is it and your community story and the transformations that your community brings to people? It's worth the full rate. It is because you can tell that story. I believe in quick wins. I believe in building momentum. I believe in being a blessing to people when we can, but I also believe in being true to rates, to being consistent around the board, to build that trust and to know that my community is worth the monthly rate because here is what we're gonna do for you. When you can sell it that way, you're going to get the rate that's budgeted. You just have to believe it. And be able to communicate the story well enough. And as a new sales and marketing director and even a new executive director, I struggled sometimes saying the rate per month because as a 24-year-old, I was never gonna be able to afford$2,500 a month for an apartment as a 44-year-old. I understand that a little bit differently now. And as someone who has been shopping at Communities for their loved one, they understand how much it costs. They do. And that's when you ask, do you have long-term care insurance? Do you have the VA benefit? Do you know about these things that can help you? And yes, we're not for everybody and sometimes that hurts, but you can help them solve the problem by finding a community that they can afford if they can't afford yours. You can be like my family and have family pitch in financially to help them. You just have to ask the appropriate questions through a good, meaningful and impactful discovery. Okay, so your NOI is the whole story. Concessions and discounts are important, but to me, rate consistency is more important. And leaders, we must ask ourselves, are we prioritizing short-term occupancy wins over long-term sustainability? Know your financial story so you know what works for you and what does not. The key takeaway here is before you make any pricing decisions, Think about it as it's going to impact you for the next six. Months to a year just like it did with me, not just today. So if we make this decision now, we're cutting the rate by a thousand dollars per month, you can assume they're going to be here for 18 months because that's the average stay. So that is$16,000 overall. And if you do that too many times, you're looking at a lot of money lost per year. Can you do that? can your community handle that? It's an important question to ask when your sales director comes to you and ask that. All right, I'm gonna give you some tactical advice. Financial knowledge is not just about numbers, it's about influence and influences. The modern day leader's superpower, in my opinion, leaders who understand their numbers, make better decisions with confidence, gain trust from their corporate teams and families, and they create sustainable communities, not just high occupancy ones. Okay. Here's your tactical advice. Know your numbers before every company meeting. You need to know them. Those numbers tell you a story. Data, financial storytelling. Know what's going on in your community and be able to talk about it. Track your move-ins and move outs and projected revenue gaps. Focus on move-ins throughout the entire month. Look, I don't know why this phenomenon of move out to the end of the month, I don't know. It happened to me too. I completely get it, but try to focus because. Where you focus your energy flows in that area. Let's get move-ins throughout the month. Every month if you have move-ins happening at the end and move outs happening at the beginning, you will stay financially in the same place you are considered stuck. The quicker you get the resident in, the more revenue you're generating for the month. So try to focus on move-ins throughout the month, not just at the end. And these fast moving, fast burning concessions will help. They will help by getting move-ins in the beginning of the month. If we start talking about that in the tours and discoveries and follow ups and use radical accountability, which is one of my favorite phrases, own your financial mistakes. Know the story and learn from them. Be honest about them, what happened, why they happened, and what we're doing to prevent them in the future. Okay. Numbers tell a story. Be the leader who knows how to read, interpret, and communicate that story effectively. It's very, very important. I hope this episode helps. I love mentoring. It's my favorite thing to do. I am always available to you. Reach me LinkedIn. you can message me. I am open to coaching, you individually as well as building mentorship programs within a company that you work with or work for. It is my passion. Share this episode if you feel like somebody on your team or somebody, a colleague that you know needs to listen to it. And if you have time, leave a review on Apple Podcasts, or a rating so we can continue to grow. This podcast is growing and I'm so happy that you are listening and sharing. I appreciate your support Remember, the more you know, the better you are. Confidence starts with action. Keep going. Own your story so you can create the future you want and always aspire for more for you.