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Member Dues: A Balancing Act

Posted by Teri Finan on 1/26/14 11:16 AM

Three Benchmarks that Define Your Club's Value Proposition

Club BenchmarkingValue, as in the value of a product or service, is a subjective concept that can be difficult to measure. When it comes to determining the value of membership in a private club, there are two forces at play. Members have certain expectations about what they will get in return for the dues they pay, and the club as a business must establish a dues level that makes it financially reasonable to meet those expectations. Finding your way to the dues level that will provide the necessary balance between happy members and the club’s long-term financial health begins with a look at three key benchmarks: Full Member Equivalents (FME), Dues per FME and Net Available Cash.

The ABCs of FMEs: Standardization of data is the only way to ensure true apples-to-apples comparisons. In order to create uniformity in the way the club industry studies and discusses member counts, Club Benchmarking uses a unit of measure called the “Full Member Equivalent” which is calculated by dividing the club’s total dues revenue by the amount a full member pays in dues per year. Nationally, the median for all clubs is 461 FMEs and for 50 percent of clubs in the country the number of FMEs is between 320 (25th percentile) and 740 (75th percentile).

Full Member Dues: This metric is the amount a full member pays. Club Benchmarking has developed very specific member scenarios for the six most common and critical member categories that exist at nearly every club (Full Family, Individual, Social, Senior, Junior and Non-Resident). Each of the six scenarios, or “cases,” is presented in a very specific manner to drive clear, “apples to apples” comparison. The Full Member Dues metric covers the Full Membership case. 

Net Available Cash: The Available Cash Model, one of the most critical financial measures in the club industry, is a standardized framework for assessing a club’s financial performance. Understanding your club's position from the perspective of Available Cash is vital.


(Click Chart to Enlarge Image)

According to that model, Available Cash is defined as the standard measure of the cash a club generates to cover expenses related to non-revenue producing departments (course maintenance, G&A, building operations, etc.) and fixed expenses (as defined by the USFRC) which include real estate taxes, insurance, property and liability insurance and interest.

Net Available Cash is the standardized operating bottom line after all operating expenses have been covered. Net AC can be positive (operating surplus), negative (operating deficit), or break-even (as is common in non-profit private clubs). Net AC tells us whether the club’s operating expenses are being supported by operating revenue or subsidized by dipping into capital income or reserves. The amount of Available Cash, Sources and Net Available Cash are key performance indicators that shed significant light on the operational model of a club.

According to 2012 Club Benchmarking data, approximately 40 percent of all clubs are running a deficit in Net Available Cash requiring subsidies from capital funds (income from initiation fees, capital dues and/or assessments) or reserves.

The Value Proposition: While separately, each of the three metrics is interesting, together they tell the story of a club’s value proposition. Obviously a club with higher than the norm FMEs (above the median) and lower than the norm on dues (below the median) and a clear operating surplus or break even is a club with a strong value proposition. 

In contrast, a club with lower than the norm FMEs, higher than the norm dues and an operating deficit is trying to balance the club’s financial needs on the backs of too few members. The lack of liquidity (as manifested by negative net available cash) means capital reserves or capital income must be tapped for the club to meet its obligations. The value proposition at this club is in a precarious position. 

There are other clear scenarios that become apparent as well using the combination of these metrics; the club with “exclusivity” as the value proposition, and the club with “historical legacy” as the value proposition are examples.

A corollary to this entire view point is that comparing just one of the metrics, dues only for example, is really not productive. Comparing dues between clubs without understanding member count or the operating bottom line is a waste of time because the number is meaningless unless it is put in context. There are clubs that charge $7,000 per year in dues, offer world class amenities and services and are flush with cash. Others charge $12,000 per year in dues and offer pedestrian services and amenities but they are about to go out of business. The key distinguishing variable is the NUMBER of MEMBERS. Without that, looking at only dues is of no value.

(Originally published in the CMAA "Back of the House" blog.)

Topics: Club Business Model, Dues and Initiation Fees, Articles

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