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[Note: If the rebate
described below kicks in after 69% occupancy instead of 75%
occupancy, then room rates can decrease by $90-$96/mo.
rather than just $80. I haven't had time yet to rewrite this
page to reflect that option, but the concept is still right
on, so read this anyway.]
In a related article we saw why room
rates are so high, and why there's nearly
nothing you can easily cut from the budget. (article)
We saw that the only three ways to meaningfully lower rates
are:
- Downsize staff and have the members do the work
instead
- Buy more houses and spread our costs out over a
greater number of members
- Increase occupancy to get more money coming in
In this article we'll explore the last option, increasing
occupancy.
Higher Occupancy =
Lower Rates
Let's say we need to make $6000 to pay for our
expenses. We could divide that by ten people, so each
would pay $600. That's kind of like what we're doing
today, people in singles pay around $600/mo. during the
long term.
But what if we had 11 people kicking in money? Then
everyone would only have to kick in $545. Ta-da, you
saved money.
In fact, that's one of the whole points of co-ops, to
pool resources so everyone can save money. The more
people kicking in, the less everyone pays. But when fewer
people kick in, everyone pays more. That's what's
happening in ICC. Those empty rooms are money out of
your pocket. If ICC were full your rates could easily
be more than $50/mo. lower.
Lower Rates = Higher
Occupancy
It cuts both ways. Having higher occupancy
allows us to lower rates. But lowering rates itself can
give us higher occupancy, because more people want to
live here when the rates are cheaper. So it's possible to
lower rates and not lose any money. We could make up for
the lower rates by having more people live here.
In fact, that's what I've proposed to the board for
the last several years in a row now: slash summer rates
and try to make up the loss with increased occupancy. But
the board has been understandably reluctant to lower
rates, because what if the increased occupancy didn't
happen? Then if we have the same number of members but at
lower rates, we'd be screwed.
Since the board has rejected my idea consistently
because they don't want to gamble on having better
occupancy I had to put my head towards coming up with a
plan that would make lowering rates in the summer less
risky....
Lower rates by
~$15/mo. for each extra member in a house
Here's the plan. It's so simple I don't know why
I (or anybody else) didn't think of it sooner: Rates
start out at the typical level. But for each extra member
who moves into the house, each member of the house pays
~$15/mo. less. (More or less, depending on the size of
the house in question.) Fill up the typical six vacancies
and everybody pays $80/mo. less.
This ties the rate reduction directly to increased
occupancy. Rates don't go down until we already
have the extra occupancy that allows us to reduce the
rates. Problem solved. This is also what many other
co-ops do -- refund the profits directly to the
members.
Below are the details of how this plan could work.
Details of the
plan
Let's see how much money an extra member brings
in. Most vacancies in the summer are doubles, so if a
vacancy is filled it will probably be a double. Last
year's rate for a double (03-04) was $414/mo. A new
member is going to eat the $105/mo. in food (current
rates) use about $25 in utilities. So we can expect to
get $414 - 105 - 25 = $284/mo. from a new member in a
double. This is how much we can divvy among all the
members in the house to lower rates.
Of course, the amount that rates go down depends on
how many members we're dividing among. Members in smaller
houses will see a bigger reduction per member than
members in bigger houses. Now before people in bigger
houses start screaming that this is unfair, look at it a
little closer: Bigger houses get to start out with more
vacancies than smaller houses. New Guild starts out with
more than twice as many vacancies as 1910 for the same
room rate. It all evens out.
So now let's figure out how many vacancies each house
can start with. We typically budget for 75% occupancy
during the summer. So here's how many people we expect to
have in each house, and how many vacancies.
|
|
Capacity
|
Expected
(75%, rounded)
|
Expected
Vacancies
|
|
1910
|
14
|
10
|
4
|
|
Arrakis
|
20
|
15
|
5
|
|
Avalon
|
23
|
17
|
6
|
|
French
|
20
|
15
|
5
|
|
Helios
|
17
|
13
|
4
|
|
HoC
|
27
|
20
|
7
|
|
New Guild
|
32
|
24
|
8
|
|
Royal
|
17
|
13
|
4
|
|
Seneca
|
19
|
14
|
5
|
Based on that we can figure how much rates can go down
per person in each house, for each extra member who moves
in:
|
|
Rate Reduction Per Member
for each vacancy filled
|
|
1910
|
$20
|
|
Arrakis
|
$16
|
|
Avalon
|
$13
|
|
French
|
$16
|
|
Helios
|
$20
|
|
HoC
|
$11
|
|
New Guild
|
$10
|
|
Royal
|
$20
|
|
Seneca
|
$16
|
|
I didn't show my work for how I arrived at
this, but here's the gist of it: I divided the
$284 in extra revenue from filling a double by
the number of members in the house, assuming
that the house has filled exactly half its
vacancies. Then I rounded all the figures. Then
I multiplied the result by the number of
vacancies to see the maximum rate reduction per
member in a 100% full house. Then I adjusted the
amounts so that the maximum rate reduction in
each house would be about $80/mo.
|
Overcoming
objections
I've been around ICC long enough that I can
already tell what the objections will be. So let's tackle
them one at a time.
Members would simply move to whatever house had the
best occupancy.
This is easily solved by making members
forfeit their rate reduction if they switch houses
after the summer has already started.
Members would simply get degenerates to sign for
rooms who had no intention of paying, just so the
presence of a warm body would lower everyone's
rates.
This is easily solved by requiring that
houses have to bring the unpaid charges below a
certain % before everyone gets their rate reduction.
One house could have 90% occupancy while another
could have 50%. Without your plan the extra occupancy
from the 90% house would subsidize the 50% house. So with
your plan we'll lose money.
Look at this a little closer. First of all,
if a house has 90% in the summer, it's probably
because of the rate reduction. Without the rate
reduction the house probably wouldn't be nearly that
full.
Second, it's important to reward houses that kick
ass even if other houses lag behind. Nothing saps
morale like not recognizing the contributions of the
people who are trying hard. If members bust their
butts and get their house fuller, then they deserve
their rate reduction, plain and simple.
Third, there's already a cushion built in: The rate
reduction is based on filling up doubles, but we'll
almost certainly fill up some singles too. The extra
money we get from a single can make up for houses with
poorer occupancy.
Finally, the amount of money we'd "lose" isn't that
great. In the example above we're talking $2300 for
the whole summer. Out of a $1,000,000 budget, it's a
drop in the bucket. And that's ignoring the doubles
vs. singles cushion, and the fact that a house with
very high occupancy probably wouldn't have that high
occupancy in the absence of the rate reduction.
This isn't fair because singles bring in more than
doubles so the numbers should be different. And with each
new member in the house the rate reduction should drop
less and less because there are more members to divide
among, so you need to make a whole table to figure out
the rate reductions. And some consideration should be
made if some houses really poor occupancy while others
have really good occupancy.
Let me make my position on this very clear:
No, no, no, no, no! It is not necessary, nor even
preferable, to have a policy that's 100% "accurate".
To make it more accurate you have to make the formulas
complicated and put in all kinds of exceptions that
make it confusing. And that's exactly the kind of
thing that will make the plan fail. For the plan
to work it has to be easy to understand. Joe or
Jane Member can easily grasp that "For each extra
member we bring in above 15, everyone's rate goes down
by $16/mo." It makes sense, they can not only
understand it but they can remember it, and it
may very well motivate them.
But they'll tune out if what they're expected to
understand sounds like this:: "So we have 14.7 people
with 75% occupancy and for each extra person we get
above 14.7 (however that happens) then we take the net
revenue calculated by taking the room rate minus a
certain amount for food and utilities and divide it by
the total number of members, which is the rate
reduction, which decreases as we fill up the house
because we get more members...." Understanding all
that B.S. is hard enough; remembering it is
even worse.
The old occupancy bonus we had was actually harder
to understand than this. Back when I was trying to
reform that bonus I polled several members and board
members, and not a single one could describe how it
actually worked.
The IRS code is the exact same principle. It's
filled with all kinds of crazy exceptions and special
calculations to try to make everything more accurate.
And that's why it's so ridiculously complicated.
With a simplified system the members might get
shortchanged by 15% or they might get 15% that they
don't "deserve". That's okay. It's perfectly
acceptable to trade a little accuracy for something
that everyone can easily understand, and actually
participate in.
The plan isn't 100% perfect. I identified minor
flaws A, B, and C.
Congratulations. The fact is that no plan is
perfect. That doesn't mean you throw away the plan. If
you can't make any changes to make the plan perfect,
then you simply have to decide whether the flawed
plan is better than the current system. In this
case, is it worth giving members the opportunity to
save $80/mo. on their rooms, or do we shrug our
shoulders and keep rates high because the plan isn't
perfect? The choice is yours.
Making this a
reality
Board members and staff can probably think of
ways to make this plan better. As I mentioned I caution
against making the plan any more complicated or harder to
understand, but besides that, there is almost certainly
room for improvement.
For this plan to become a reality a board member will
have to propose it. I can't do so because I'm not on the
board. I therefore challenge board members to take this
idea and run with it. And house members, if you like the
idea but your board rep isn't doing anything about it,
ask them to do so. This plan won't happen on its own.
Members have to make their voices heard.
Good luck!
Appendices
Historical Summer
Occupancy Rates
(% of available beds,
for entire summer)
|
|
2003
|
2002
|
|
Avalon
|
61
|
80
|
|
French House
|
73
|
85
|
|
Helios
|
(spruce up)
|
74
|
|
House of Commons
|
70
|
75
|
|
New Guild
|
44
|
(spruce up)
|
|
Royal
|
78
|
79
|
|
Seneca Falls
|
89
|
92
|
|
All
|
56.1
|
63.9
|
Note: The snapshot occupancy figures on
8/7/03 and 8/8/02 weren't much different than this -- 2003:
63, 73, -, 72, 43, 73, 89. 2002: 76, 81, 73, 67, - 78,
95
Factors driving lower
summer occupancy
Howard notes:
Somes Reasons members leave ICC and Austin in
the summer:
- Cost too high
- No jobs in Austin, bad economy
- Can live for free with Parental Units
- Parents say I have to come home
- Travel plans
- Graduation
Of all of the reasons only cost is within our control.
No reason not to see if manipulation of that will improve
occupancy significantly.
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