Clarent University: Use data to increase NOI

Paul Jarvis, CEO and Co-Founder
May 2, 2023
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At Clarent, we believe that data can benefit everyone in senior living: not just owners and executives. To make this possible, we are excited to launch Clarent University, a new series focused on explaining how to make data-informed decisions in senior living.

For our first course, we're focused on how to use data to increase net operating income (NOI). Read on to learn more! 

Part 1: Why is NOI important

NOI is widely considered the #1 measure of financial success in the senior living business. NOI is calculated by taking revenue and then removing all the operating expenses (staffing, food, etc) to measure profitability.

In senior living, NOI is measured at the community level. The goal for each community is to be "NOI positive" which means that it is making money. If a community is NOI positive then the Executive Director and other community leaders may be eligible for bonuses. If the community is not profitable (not profitable = NOI negative), then owners may want to make changes to community leadership or even sell the community.

Part 2: How you can use data to increase NOI

The flow chart below is a simple view of how the senior living business works: you need to balance occupancy (and prices) vs. expenses (and staffing is 60%+ of total expenses). This chart is a direct representation of how owners and executives think: they stack rank all their communities by NOI and then drill down for communities that are NOI negative (and thus underperforming).

For communities that are NOI negative, the first step is to compare the current NOI vs. what you had forecast in the budget. It may also be helpful to compare NOI vs. similar communities or historical community data to get more context. For example, it may be normal to have negative NOI at a new community that is fully staffed but still building occupancy. It may be helpful to look at NOI per occupied unit (NOI POU) to compare communities since that controls for differences in occupancy.

Once you've determined where to focus (revenue or expenses), the next step is to dig in! 

Use this flow chart to identify issues that may be preventing your community from being NOI positive
Part 3: Digging in! 

For revenue, it's either an occupancy problem or a pricing problem: if you have high occupancy but low revenue, you're not making enough revenue per occupied unit. If occupancy is low, is it due to low move-ins or high move-outs? 

For expenses, it's mostly likely due to staffing expenses. You should start by looking at the most expensive sources of labor first (agency and overtime). If those are both in line with expectations, the expenses may be driven by full-time labor or controllable operating expenses (COE).

Part 4: How you can do this analysis for your community & next steps

While the flow chart is simple, we all know that senior living is in extremely dynamic! Our goal is to make it simple to understand how the business works, appreciate how owners and executives think, and access the data you need to drive positive NOI.

If you're interested in the running this analysis on your community or portfolio please reach out to us. Doing this analysis requires looking at CRM, payroll, financial, and occupancy data - that can be a lot of work! That's why we built Clarent: to provide a single source of truth for senior living teams to make informed decisions.