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Room Rates Why they're so high, and how to lower them Feb. 2004 This was written for ICC-Austin, but the discussion is applicable to most other multi-house co-op systems.

To understand room rates, we first need to see where your money is going:   (More details about this chart are in the Financial Training PDF document.) Those with little knowledge of or experience with central ICC planning often think that room rates are high for no good reason, and that either somebody is getting rich off us or that money is being squandered. I promise you that is not the case. Rates are high because of things like poor real estate investments in the 80's which we're still paying for and Arrakis burning down, things that are completely beyond our control today. Think about it: The board is made up of students from the houses, who are paying room charges just like everyone else. Doesn't it make sense that they would lower rates if they could? Or do we think that everyone who's been on the board for the last several years is just stupid for failing to lower rates when they could have easily done so? Let's assume I haven't convinced you yet and you think the board is stupid. Okay, fine, you're in charge. What would you cut? Let's have a look. Properties (Mortgages & Leases). Not-uh. We have to pay back our loans to the bank or they repossess the houses. And we have to pay our rent on HoC and Avalon or we get evicted. Food. Can't cut this unless we want people to starve. And the amount of money that houses get for food hasn't kept up with inflation -- it's been the same $105/mo. for 3-4 years now.. Maintenance. Members have been adamant that we need more maintenance, not less. The condition of our buildings means that we have no choice but to keep investing in their upkeep. Utilities. If houses paid their own utilities bills that would help by giving members an incentive to save. Right now your room charges are the same every month whether you save like crazy or whether you leave your AC on and the window open, so why should we expect people to bother? Still, even a massive 10% savings on utilities would knock only $6/mo. off room rates. Savings. Every responsible individual and organization saves for a rainy day. Abandoning savings is dangerous. Advertising, etc. Advertising is only 1% of the budget and pays for itself if it brings in just 2.5 members a year. Cutting advertising would probably mean that we'd lose money because we'd have more vacancies. Staff. This is the only area where cuts are even possible, but even so you can't just snap your fingers and make it happen. All of your staff members are engaged in productive work that's necessary for running the organization. If you get rid of staff members then regular members need to pick up the slack, and members have consistently opposed the idea of doing any more work themselves. Besides, much of your staff is not expendable no matter what. You need a professional accountant in order to manage a $1 million budget, there's no way around it. By the way, your staff are already working at well below market rates. Let's look at staffing in more detail since it's our only option. To save on staffing costs, you basically have two choices: (1) Do some of the work yourselves and downsize staff, or (2) Get more houses so you can spread the staffing costs out over more members. This is one reason I've been banging the drum for expansion ever since I've been around ICC. It's one of the only ways to significantly impact room rates, if members don't want to do staff's work. Note that downsizing is not a panacea even if you can do it. Saving $34k on one position (salary + benefits + taxes), saves only $17/mo. off room rates. Significant, yes, but not the $50-$100/mo. that some people seem to think we're capable of somehow.   Put things into perspective:   $2000 of budget = $1 of room rates When trying to cut the budget it's important to put things in perspective. Every $2000 you cut saves only $1/mo. in room rates. You can cut lots of little things which people will actually miss and still fail to meaningfully impact room rates. Last year a Senecan told me she wanted to get on the board so she could cut the fat from the budget and lower rates. She cited a $400 expense she thought was wasteful. I replied that that expense amounted to only $0.20/mo. of room rates. "Sure," she said, "but all those little things add up." But in fact they don't, not in a meaningful way. Cut four little programs totaling $2000 and you've saved a whopping $1/mo. off rates, while perhaps killing things such as scholarships, food for General Membership Meetings, and ICC t-shirts. It's not worth it. Anyway, last year this Senecan along with others successfully lobbied the board to make a number of these small cuts which made a noticeable impact in ICC life but which failed to make a noticeable impact on room rates. Then some months later, realizing the true impact, she went back to the board and asked for some of those cuts to be reinstated. The moral is not that there once was a misguided Senecan, but rather that it's easy for any of us to mistakenly think that little cuts will have a big impact. Most of us are used to thinking in terms of $600 for rent and $300 for textbooks -- it's hard to wrap our minds around a one million dollar budget. Just remember the magic key: $2000 of cuts = $1 of room rates. Choose carefully.   Improve Occupancy to Lower Rates There's one more way to potentially lower rates: Get more people to live here. If ICC were completely full year-round then rates could be $68/mo. lower. That's the equivalent of firing two of your lowest-paid staffers or buying two more houses, the benefits of which wouldn't be seen for 20 years into the future. Of course, lowering rates by itself will improve occupancy, but how much decrease do we need in order to fill the place up? That's the burning question. If you lower rates and you don't get the extra occupancy then you're screwed. My rough estimate is that we could lower doubles by $50/mo. if we filled them up completely in fall and got only a modest increase in summer. Here's an article and spreadsheet about how to lower rates in the summer. Summary I maintain that the only significant ways to lower room rates are: Downsize staff. Purchase more property. Increase occupancy. None of these can be accomplished by snapping your fingers, but these are our only real choices for meaningfully lowering rates. If any of you has a different plan for how to slash rates I'm sure the board would be all ears. If you think it can be done, let's see your stuff! It's your co-op, if you have a good idea, you can make it happen.

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