Reducing overhead has become a critical task for senior housing providers that were hit hard during the COVID-19 pandemic. Expenses have elevated across the industry, making it difficult to set a budget amidst turbulent times. Thankfully, there are plenty of ways to start saving money today, starting with the relationship you have with your vendors.
In this blog, we have distilled seven actionable strategies senior housing organizations can use to expand budgets and achieve greater savings.
When experts are brought in to assist budgeting for senior housing organizations, the first thing they look for is a waterfall of contract roll offs. Unfortunately, most organizations do not have these in place, and if they do, they don’t know when to launch the renewal process. Organizing your contracts and building them into a waterfall is the first thing you should do for reducing your overhead, as it gives you a clear picture of when contracts are set to end and gives you leverage to understand which contracts can be changed.
The majority of services provided for senior housing facilities are part of a multi-year contract. It is critical to know precisely when to begin renewing these services, which can vary from contract to contract. For instance, telecom contract renegotiation should begin 15 months out from the end of the contract, to ensure that you have enough time to migrate if you choose.
Building out a contract waterfall is impossible without fully understanding the terms of each individual contract. Auto renewal clauses catch many businesses off-guard, making it difficult or impossible to negotiate new contracts with other businesses. At what point do you need to notify your clients of non-renewal?
Any service-related solution is going to have an annual price escalator. Consider your internet bill – unless you have switched services to ensure the best pricing, you’re probably paying at least double of what you were when you first got the service. Every year, you can expect the cost of services increase from year to year.
However, these annual increases can be controlled. A strategy that we use is negotiating along the consumer price index (CPI) or a fixed number generally between 2-3%.
The most important part of this is ensuring that vendors adhere to these numbers. Some vendors will charge whatever they want after negotiations – showing contractual language that ties them back to a fixed price increase helps hold these companies accountable in the future.
Every single month, you must audit your contracts against your invoices. While it may seem a daunting task, this is often where the majority of savings can be found – after pricing has been fought for, many companies charge between 22-43% more than the contracted rates. This happens because most of the time, vendors get away with it, and the chance of getting caught with any audit trail is slim.
Bringing employees into the conversation before negotiations begin helps align your budget with your business. All too often, services are negotiated before employees have a chance to adjust to new systems.
This is particularly important to SaaS, or software as a service. In the senior living space, ERPs help employees manage their day-to-day operations, and pivoting to a new software takes a tremendous amount of time. When employees aren’t brought in before negotiations, they may be stuck in the migration process, leading senior living organizations paying for two bills rather than one.
Competitive bidding is the essence of good contract negotiation. Often, executive leadership rely on vendors to tell them if the pricing they are getting is competitive, rather than doing the research on their own. Vendors are not obligated to be honest about this, leading to many organizations overpaying on their existing contracts.
Presenting data on standardized pricing in the industry allows you to negotiate effectively on your existing contracts, and gives you insight into what other options are available for your organization.
The best strategy for contract negotiations is directness. Data doesn’t lie. Presenting cold numbers and verifying what you are paying versus what other options are available puts the power in your court, rather than relying on the trustworthiness of vendors. When you provide data, vendors tend to be much easier to negotiate with, allowing you to remain with incumbent contractors rather than switching to a new one. As soon as ambiguity enters the picture, vendors gain control over renegotiations.
SIB works with over 70,000 locations, giving us insight into best-in-class pricing rather than pricing by industry. We live and breathe cost savings, and help senior living organizations get the best pricing across the board.
While these strategies are part of how we bring success to clients, they can often be difficult to do on your own. If you’re looking for assistance with lowering your overhead, contact us for more information about our services. We only get paid if you save money, meaning that we will fight to ensure that you get the best pricing available – no questions asked.
This blog is a summary of a webinar SIB sponsored with Senior Housing News in October of 2021, led by panelists Tom Boler, VP of Finance at Legacy Senior Living; Jim Pusateri, CEO of True Connection Communities; and Kevin Flounders, CEO at SIB.