23 data to include in the business plan of your retirement home

This article was written by our expert who is surveying the industry and constantly updating the business plan for a retirement home.

Our business plan for a retirement home will help you build a profitable project

Ever pondered what the ideal resident-to-staff ratio should be to ensure quality care in your retirement home?

Or how many occupancy days you need to achieve each month to meet your financial goals?

And do you know the optimal maintenance cost percentage for a well-functioning senior living facility?

These aren’t just nice-to-know figures; they’re the metrics that can determine the success or failure of your operation.

If you’re crafting a business plan, investors and financial institutions will scrutinize these numbers to gauge your preparedness and potential for success.

In this article, we’ll explore 23 critical data points every retirement home business plan needs to demonstrate that you're equipped and ready to thrive.

Staffing costs should account for 50-60% of total expenses, given the need for skilled caregivers and medical staff

Staffing costs in a retirement home typically account for 50-60% of total expenses due to the essential need for skilled caregivers and medical staff.

These professionals are crucial for providing quality care and ensuring the well-being of residents, which is the primary mission of any retirement facility. The high percentage reflects the necessity of maintaining a qualified workforce to meet the diverse needs of the elderly, from daily assistance to specialized medical attention.

However, this percentage can vary depending on factors such as the level of care required by residents and the specific services offered by the facility.

For instance, a retirement home that offers more intensive medical services may have higher staffing costs due to the need for more specialized personnel. Conversely, facilities that focus on independent living might allocate a smaller portion of their budget to staffing, as residents require less direct care.

Occupancy rates should ideally be above 90% to ensure financial viability

Occupancy rates in retirement homes should ideally be above 90% to ensure financial viability because they need to cover their operational costs and generate a profit.

High occupancy rates help retirement homes manage fixed costs like staffing, utilities, and maintenance, which remain constant regardless of the number of residents. Additionally, a higher occupancy rate allows for better allocation of resources, ensuring that the facility can provide quality care and services to its residents.

However, the ideal occupancy rate can vary depending on factors such as the size of the facility and the local market conditions.

For instance, a smaller retirement home in a high-demand area might achieve financial viability with a slightly lower occupancy rate due to higher pricing. Conversely, a larger facility in a less populated area might need to maintain an even higher occupancy rate to cover its costs and remain competitive.

Resident turnover is typically 20-30% annually, so plan for consistent marketing and outreach efforts

Resident turnover in retirement homes is typically around 20-30% annually, which means that these facilities need to maintain consistent marketing and outreach efforts.

This turnover rate can be attributed to various factors, such as residents moving to different care levels or passing away. Additionally, some residents may choose to relocate closer to family or to a different facility that better suits their needs.

Given these dynamics, retirement homes must continuously attract new residents to maintain occupancy levels and financial stability.

However, the turnover rate can vary depending on specific circumstances, such as the location of the facility or the quality of care provided. Facilities in high-demand areas or those offering exceptional services may experience lower turnover rates, while those in less desirable locations or with fewer amenities might see higher rates.

75% of retirement homes break even within the first three years, largely due to effective cost management

Many retirement homes achieve financial stability within three years primarily due to effective cost management.

By carefully managing expenses, these facilities can control operational costs, such as staffing, maintenance, and utilities. Additionally, they often implement strategic pricing models that align with market demand, ensuring a steady stream of revenue.

However, the time it takes to break even can vary based on factors like location and size of the facility.

For instance, retirement homes in high-demand urban areas might reach profitability faster due to higher occupancy rates. Conversely, those in rural or less populated regions may take longer to break even due to lower demand and potential challenges in attracting residents.

Retirement homes should aim for a break-even point within 24 months to be considered viable

Retirement homes should aim for a break-even point within 24 months to be considered viable because this timeframe allows them to establish a stable financial foundation while minimizing long-term risks.

Achieving a break-even point within this period ensures that the home can cover its operational costs and start generating profits, which is crucial for maintaining quality services and facilities. Additionally, a 24-month target provides a realistic timeline for assessing the home's market demand and adjusting strategies accordingly.

However, this timeframe can vary depending on factors such as location, size, and the level of care provided.

For instance, a retirement home in a high-demand urban area might reach its break-even point faster due to a larger pool of potential residents. Conversely, a facility offering specialized care might take longer to break even due to higher initial investments in staff training and equipment.

Healthcare services can contribute 20-30% of revenue, making them crucial for profitability

Healthcare services can significantly impact the revenue of a retirement home, often contributing between 20-30% of total income, which makes them essential for achieving profitability.

These services are crucial because they cater to the specific needs of residents who often require ongoing medical attention and support. By offering comprehensive healthcare options, retirement homes can attract more residents, thereby increasing their occupancy rates and overall revenue.

However, the extent to which healthcare services contribute to revenue can vary based on factors such as the level of care provided and the specific demographic of the residents.

For instance, a facility that offers specialized care for residents with chronic conditions may see a higher percentage of revenue from healthcare services. Conversely, a retirement home with a more independent resident population might rely less on healthcare services for its income, focusing instead on lifestyle amenities and community activities.

Prime cost (staffing and healthcare supplies) should stay below 70% of revenue for financial health

In a retirement home, keeping the prime cost—which includes staffing and healthcare supplies—below 70% of revenue is crucial for maintaining financial health.

Staffing and healthcare supplies are typically the largest expenses, and if they exceed 70% of revenue, it can lead to cash flow issues and limit the ability to invest in other areas like facility improvements or resident activities. By keeping these costs in check, the retirement home can ensure it has enough financial flexibility to handle unexpected expenses or economic downturns.

However, this percentage can vary depending on specific factors such as the level of care provided and the location of the facility.

For instance, a retirement home offering specialized medical care may have higher staffing costs, which could push the prime cost percentage higher. Similarly, facilities in areas with a higher cost of living might face increased expenses, necessitating a different financial strategy to maintain economic stability.

Allocate 2-3% of revenue for facility maintenance and upgrades annually

Allocating 2-3% of revenue for facility maintenance and upgrades annually is a common practice to ensure that a retirement home remains safe, comfortable, and appealing for its residents.

This percentage is a guideline that helps cover the costs of routine maintenance, such as repairing HVAC systems, plumbing, and electrical work, as well as more significant upgrades like renovating common areas or updating safety features. By consistently investing in the facility, retirement homes can prevent larger, more costly issues from arising, which could disrupt the lives of residents and potentially lead to higher expenses in the long run.

However, the exact percentage allocated can vary depending on factors such as the age of the building, its current condition, and the specific needs of the residents.

For instance, an older facility might require a higher percentage of revenue to address more frequent repairs or to modernize outdated infrastructure. Conversely, a newer building might need less immediate investment, allowing for a lower percentage allocation, but still requires a proactive approach to maintain its value and functionality over time.

A successful retirement home should have a resident-to-staff ratio of 5:1 during peak hours

A successful retirement home should maintain a resident-to-staff ratio of 5:1 during peak hours to ensure personalized care and attention.

This ratio allows staff to provide adequate support for daily activities, such as bathing, dressing, and medication management, which are crucial for the well-being of residents. Additionally, it ensures that staff can respond promptly to emergencies, enhancing the safety and security of the residents.

However, this ratio may vary depending on the specific needs of the residents and the services offered by the facility.

For instance, a retirement home with a higher number of residents requiring specialized medical care might need a lower ratio to provide the necessary attention. Conversely, facilities with more independent residents might operate effectively with a slightly higher ratio, as these residents require less intensive support.

Inventory turnover for medical and food supplies should happen every 14-21 days to ensure quality and freshness

Inventory turnover for medical and food supplies in a retirement home should occur every 14-21 days to ensure the quality and freshness of these essential items.

Medical supplies, such as medications and sterile equipment, have specific expiration dates and can lose effectiveness if not used within a certain timeframe. Similarly, food supplies need to be rotated frequently to maintain nutritional value and prevent spoilage, which is crucial for the health of elderly residents.

In a retirement home, maintaining a regular inventory turnover schedule helps to minimize waste and ensures that residents receive the best possible care.

However, the frequency of inventory turnover can vary depending on factors such as the size of the facility and the specific needs of its residents. For instance, a larger facility may require more frequent turnover due to higher consumption rates, while a smaller home might adjust its schedule based on the unique dietary requirements or medical needs of its residents.

It's common for retirement homes to lose 2-4% of revenue due to theft or inventory shrinkage

Retirement homes often experience a 2-4% revenue loss due to theft or inventory shrinkage because of the unique challenges they face in managing resources and personnel.

With a large number of staff and residents, it can be difficult to maintain strict oversight, leading to opportunities for unauthorized access to supplies. Additionally, the high turnover rate among staff can result in inadequate training on inventory management and security protocols.

Moreover, the nature of the services provided, such as medical supplies and personal care items, makes them more susceptible to theft or misplacement.

However, the extent of revenue loss can vary depending on factors like the size of the facility and the effectiveness of their inventory control systems. Facilities with robust security measures and well-trained staff may experience lower shrinkage rates, while those lacking these may see higher losses.

Rent or mortgage should not exceed 10-12% of total revenue to avoid financial strain

In the context of a retirement home, it's often advised that rent or mortgage should not exceed 10-12% of total revenue to avoid financial strain.

This guideline helps ensure that a significant portion of the revenue is available for other essential expenses, such as staffing, healthcare services, and facility maintenance. By keeping housing costs low, retirement homes can allocate more resources to improve the quality of life for their residents.

However, this percentage can vary depending on specific circumstances, such as the location and size of the facility.

For instance, a retirement home in a high-cost urban area might find it challenging to adhere to this guideline, necessitating adjustments in other budget areas. Conversely, a smaller facility in a rural area might easily maintain this percentage, allowing for more flexibility in other financial commitments.

Upselling additional services can increase average resident spend by 15-20%

Upselling additional services in a retirement home can significantly boost the average resident spend by 15-20% because it enhances the overall living experience.

Residents often seek a more comfortable and convenient lifestyle, and offering services like housekeeping, meal plans, or personalized care can meet these desires. These services not only improve their quality of life but also encourage them to invest more in their living arrangements.

However, the impact of upselling can vary depending on the specific needs and preferences of each resident.

For instance, some residents may prioritize health and wellness services, while others might be more interested in social activities or entertainment options. Understanding these individual preferences allows retirement homes to tailor their offerings, ensuring that the upselling strategy is both effective and appreciated by the residents.

The average profit margin for a retirement home is 5-8%, with higher margins for luxury facilities and lower for basic care

The average profit margin for a retirement home typically ranges from 5-8% due to the balance between operational costs and revenue.

Luxury facilities often enjoy higher profit margins because they can charge premium rates for enhanced amenities and personalized services. In contrast, basic care facilities operate on tighter budgets and offer fewer services, which limits their ability to increase prices and thus results in lower profit margins.

These margins can vary significantly based on factors such as location, the level of care provided, and the efficiency of management.

For instance, a retirement home in a high-demand urban area might achieve a higher margin due to increased demand and the ability to charge more. Conversely, a facility in a rural area might struggle with lower margins due to fewer residents and lower pricing power.

Average resident fees should grow by at least 2-4% year-over-year to offset rising costs

In a retirement home, it's crucial for average resident fees to increase by at least 2-4% annually to keep up with rising costs.

One of the main reasons is that operational costs, such as utilities, staff salaries, and maintenance, tend to rise over time due to inflation. Additionally, healthcare costs, which are a significant part of retirement home expenses, often increase at a rate higher than general inflation.

Without adjusting fees accordingly, the retirement home might struggle to maintain the quality of services provided to its residents.

However, the exact percentage increase can vary depending on specific factors like the location of the facility and the level of care provided. For instance, a retirement home in a high-cost urban area might need to raise fees more than one in a rural setting to cover its higher expenses.

Ideally, a retirement home should maintain a current ratio (assets to liabilities) of 1.5:1

Ideally, a retirement home should maintain a current ratio of 1.5:1 because it indicates a healthy balance between its assets and liabilities, ensuring it can meet short-term obligations.

This ratio suggests that for every dollar of liability, the home has $1.50 in assets, providing a cushion for unexpected expenses and maintaining operational stability. A ratio lower than 1.5 might indicate potential liquidity issues, while a much higher ratio could mean the home is not effectively using its assets to grow or improve services.

However, the ideal ratio can vary depending on specific circumstances, such as the size of the retirement home or its business model.

For instance, a larger facility with more predictable cash flows might operate safely with a slightly lower ratio, while a smaller home might need a higher ratio to account for financial uncertainties. Ultimately, the key is to balance having enough assets to cover liabilities while also investing in improvements and services that enhance the residents' quality of life.

Effective service package structuring can boost revenue by 10-12% by highlighting high-margin services

Effective service package structuring in a retirement home can boost revenue by 10-12% by highlighting high-margin services.

By carefully designing service packages, retirement homes can emphasize services that offer higher profit margins, such as personalized care plans or exclusive wellness programs. This not only attracts residents who are willing to pay more for premium services but also ensures that the home maximizes its revenue potential.

However, the impact of service package structuring can vary depending on the specific needs and preferences of the residents.

For instance, a retirement home in a high-income area might see a greater boost in revenue by offering luxury amenities, while a home in a more modest area might benefit from bundling essential services at a competitive price. Ultimately, understanding the target demographic and tailoring packages to meet their expectations is key to achieving the desired revenue increase.

A retirement home should have 1-1.5 square meters of common space per resident to ensure comfort and efficiency

A retirement home should have 1-1.5 square meters of common space per resident to ensure comfort and efficiency because it provides a balance between personal and shared areas.

Having this amount of space allows residents to engage in social activities and fosters a sense of community, which is crucial for their mental and emotional well-being. Additionally, it ensures that there is enough room for mobility aids like wheelchairs and walkers, which are often necessary for elderly residents.

However, the specific needs for common space can vary depending on the level of care required by the residents.

For instance, facilities with residents who have higher care needs might require more space to accommodate specialized equipment and staff. Conversely, more independent living arrangements might get by with slightly less common space, as residents may spend more time in their private quarters or outside the facility.

Health inspection scores can directly impact occupancy rates and should stay above 95%

Health inspection scores are crucial for retirement homes because they directly influence the facility's reputation and, consequently, its occupancy rates.

When scores are above 95%, it signals to potential residents and their families that the facility maintains high standards of cleanliness and safety. This assurance can lead to higher demand for spots in the home, as families want the best possible environment for their loved ones.

Conversely, lower scores can deter potential residents, leading to decreased occupancy and financial strain on the facility.

However, the impact of these scores can vary depending on the specific circumstances of each retirement home. For instance, a facility in a highly competitive area might feel the effects of a lower score more acutely than one in a less competitive market, where options are limited and families might be more forgiving. Additionally, homes with a strong reputation or unique offerings might be able to weather a temporary dip in scores better than those without such advantages.

Retirement homes in urban areas often allocate 2-4% of revenue for transportation partnerships and fees

Retirement homes in urban areas often allocate 2-4% of revenue for transportation partnerships and fees because providing reliable transportation is crucial for residents' quality of life.

In urban settings, public transportation might not always be accessible or convenient for elderly residents, necessitating partnerships with private transportation services. These partnerships ensure that residents can attend medical appointments, social events, and run errands, which are essential for maintaining their independence and well-being.

Additionally, urban retirement homes face higher operational costs, and transportation is a significant part of these expenses.

However, the percentage of revenue allocated can vary depending on factors such as the size of the facility and the specific needs of its residents. For instance, a larger retirement home with more residents might negotiate better rates with transportation providers, potentially reducing the percentage of revenue spent. Conversely, a facility with residents who have more frequent medical appointments might allocate a higher percentage to ensure adequate transportation services.

Digital marketing should take up about 2-4% of revenue, especially for new or expanding facilities

Digital marketing should take up about 2-4% of revenue for retirement homes, especially when they are new or expanding, because it helps establish a strong online presence and attract potential residents.

For new or expanding facilities, investing in digital marketing is crucial as it allows them to reach a wider audience and build brand awareness quickly. This percentage of revenue ensures that the facility can effectively utilize various digital channels like social media, search engines, and online ads to engage with potential clients.

However, the exact percentage can vary depending on factors such as the facility's location, target market, and competition.

In areas with high competition, a retirement home might need to allocate a higher percentage to stand out and capture the attention of potential residents. Conversely, in less competitive markets, a lower percentage might suffice, allowing the facility to focus on other areas of growth.

Seasonal activity changes can increase resident satisfaction by up to 20% by enhancing engagement

Seasonal activity changes can boost resident satisfaction in retirement homes by up to 20% because they enhance engagement and provide variety.

By introducing season-specific activities, residents are more likely to participate, as these activities often align with their interests and memories, such as gardening in spring or crafting during the winter holidays. This increased participation leads to a sense of community and belonging, which is crucial for overall satisfaction.

Moreover, these activities can be tailored to meet the individual needs of residents, ensuring that everyone can find something enjoyable and accessible.

For instance, more active residents might enjoy outdoor walks or sports in the summer, while those with limited mobility might prefer indoor activities like storytelling or music sessions. By catering to these diverse preferences, retirement homes can create a more inclusive environment, ultimately enhancing the quality of life for all residents.

Establishing a staffing cost variance below 5% month-to-month is a sign of strong management and control.

Maintaining a staffing cost variance below 5% month-to-month in a retirement home indicates strong management and effective financial control.

In a retirement home, where staffing needs can fluctuate due to resident care requirements, keeping costs stable shows that management is adept at anticipating changes and adjusting accordingly. This stability ensures that the home can provide consistent care without unexpected financial strain.

However, the acceptable variance can differ based on specific circumstances, such as the size of the facility or the level of care required by residents.

For instance, a smaller facility might experience more significant fluctuations due to a smaller staff pool, making a slightly higher variance acceptable. Conversely, a larger facility with more resources might be expected to maintain a tighter control, thus keeping the variance closer to 5% or even lower.