Feasibility Studies: Numbers Tell Part of the Story

A client recently asked us to complete a market feasibility study for an assisted living facility.  It was a typical project that included crunching the numbers of supply and demand for assisted living in the market.  We call this type of feasibility study a Desktop Study because we did not visit the market, interview likely referral sources, tour competing facilities, or other things that go into a comprehensive market feasibility study.  But that’s what the client wanted, and that’s what we provided.

The client seemed to be pleased with the final report.  It included everything they were expecting.  However, our conclusions for this type of report amount to a summary of the data and a comparison to industry standards and similar markets.  So, the client asked the question:  would you do this development?

Good question.

The final go or no-go decision on an assisted living development depends on a lot more than the numbers.  There are many, many variables to consider but here are some of the more important.

  1. Supply-Demand Within The Niche.  Many feasibility studies paint with a broad brush, looking at the total number of persons in a certain age or age-income category.  Likewise, the supply of assisted living facilities includes all of the licensed beds within a radius.  However, it’s vitally important to first know the niche that you wish to serve and then how the supply-demand looks within that niche.
  2. Local Perception of Need.  We often tell stories of the pie and coffee test when picking markets.  Back in the day, one of the best sources of local information was a diner or coffee shop.  We would enjoy a piece of pie and a cup of coffee and informally conduct a focus group with the other customers.  No, it’s not terribly scientific.  But it provided valuable information about how potential customers of a new facility perceived the need in their community.
  3. The Bigger Picture.  An assisted living development is normally not a single, stand-alone project for the developer.  The new facility is either an addition to a portfolio, or a single component of a larger development.  The go or no-go decision is often dependent, to some degree, on the other benefits that will be derived from the development, such as increasing economies of scale for a management company or rounding out housing options in a larger development.

So how did I answer the client’s question about whether I’d do the development?  With my own questions, of course.  Once he answers those questions, he will know whether it’s a go or no-go.

Just remember that the numbers are an important part of any feasibility study but they only tell part of the story.

Please share your stories about how you test for market feasibility in the comments below.  Anyone else go for pie and coffee?

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