Club KPIs

Questions are the Key

You’ve heard the phrase “measure what matters,”  but how do you decide what really matters for your club? While the answer may vary from club to club, the goal is still the same—to identify a set of measures that can be used to accurately assess, manage and predict financial and operational performance. Deciding what to measure begins by figuring out what you need to know about your club. In Einstein’s words, you start by “determining the proper questions to ask.”

Through extensive study of club industry data, we have identified a set of key questions that correlate directly to the financial and operational health of a club and developed specific metrics and ratios that will answer those questions. The resulting standardized Executive Dashboard of Key Performance Indicators for the club industry establishes a common framework and common language for “measuring what matters.” The intent of the Executive Dashboard is to provide clubs with a properly focused set of metrics that help Boards concentrate on what does matter and, more importantly, keeps them from being distracted by what does not matter.

The Executive Dashboard identifies KPIs in five categories: Operating Finance KPIs; Capital Generation KPIs; Operational KPIs; Membership KPIs, and Debt KPIs. We’ll cover all five categories in a series of posts. This first installment will look at the four key questions and Key Performance Indicators related to Operating Finance.

Key Question #1
How much money is available to cover the club's fixed operating expenses?

KPI: Gross Profit (aka Available Cash)

Calculation: Membership Dues + (F&B Net = F&B Rev. – F&B Exp.) + (Rooms Net = Rooms Rev. – Rooms Exp.) + (Other Net = Other Op. Rev. – Other Op. Exp.) + (Golf Ops Rev. – (Golf Ops Exp. – Golf Ops Labor)) + (Yachting Net = Yachting Rev. – Yachting Exp.) + Ancillary Sports and Recreation Revenue

Relevance: The importance of understanding Available Cash cannot be overemphasized. Dues revenue is by far the dominating contributor to AC. A relatively high or low level of Available Cash is most often correlated to the mix of dues and food & beverage revenue. As in any business, lower gross profit (Available Cash) tends to result in a weaker operating bottom line, and higher gross profit (Available Cash) tends to result in a stronger operating bottom line.  Chart 1 below shows Available Cash for the median club in the CB database was $3.6M in fiscal year 2014.

(Click to enlarge)Gross Profit private club

Key Question #2
Does our revenue mix produce adequate margin?

KPI: Gross Margin (Available Cash to Operating Revenue Ratio) 

Calculation: Available Cash Ratio = Available Cash/Operating Revenue

Relevance: Variation in the AC Ratio can usually be explained by observing the mix of dues revenue and F&B revenue. Clubs with a high AC ratio tend to have a larger proportion of operating revenue from dues and lower proportion from F&B. Clubs with lower AC Ratios have the opposite mix and those clubs typically struggle to achieve operating breakeven (see Net Available Cash below) because there is not enough Available Cash to cover fixed expenses. By itself, a lower AC Ratio does not necessarily identify a problem, but coupled with a negative Net Available Cash it is likely indicative of a weak dues engine. Chart 2 below shows the median ratio for all clubs in the CB database was 59 percent fiscal year 2014.

(Click to enlarge)gross margin private club

Key Question #3
Is the dues component of our revenue suitable?

KPI: Membership Dues to Revenue Ratio

Calculation: Membership Dues Ratio = Membership Dues/Operating Revenue

Relevance: Dues revenue is THE financial driver in clubs and this KPI assesses what proportion of your club’s operating revenue is driven by dues (a club’s most profitable revenue). A low Membership Dues ratio cannot be ignored and deserves intense focus. A low MD Ratio often occurs where member counts (FMEs) are low and/or dues per member are low. Chart 3 below shows the median MD Ratio was 49 percent for all clubs in the CB database in fiscal year 2014.

(Click to enlarge)
dues revenue private club

Key Question #4
Do we produce enough money to fund operations? Do operations draw money from or produce money for capital?

KPI: Operating Bottom Line (Net Available Cash)

Calculation: Net Available Cash = Available Cash – Course Maintenance Expense – G&A Expenses – Building Maintenance and Operation Expense – Sports and Recreation Expense – Golf Operations Labor – Fixed Charges (Fixed operating expenses exclude any expenses related to leases which are considered a capital expense.)

Relevance:  Ideally, Net Available Cash will be break-even or positive since any deficits must be covered by subsidies that flow from the capital side of the ledger. Nearly 80 percent of a club’s Available Cash comes from dues revenue, so a negative result in Net AC is often the result of dues revenue being too low to support expenditures. Another possible cause is that fixed expenses are too high. The key is to understand the operating bottom line result as it stands, without any shifting of capital income. Chart 1 above shows median Net Available Cash for all clubs in the CB database was $53K for fiscal year 2014.

CLICK HERE to download a sample copy of the Executive Dashboard Report

WATCH THE VIDEO: "INTRODUCTION TO THE EXECUTIVE DASHBOARD"

The Executive Dashboard identifies KPIs in five categories: Operating Finance KPIs; Capital Generation KPIs; Operational KPIs; Membership KPIs, and Debt KPIs. We’ll cover all five categories in this series. NEXT IN THE SERIES: CAPITAL KPIs

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Capital spending club industryA Proactive Approach
to Capital Income

You know it when you see it. A private club facility that looks tired and outdated can leave you with the feeling that the club’s leadership either doesn’t care or can’t afford to make improvements. It’s not an impression anyone wants to make on current or prospective members. Unfortunately for many clubs, in today’s sluggish membership market, the flow of initiation fees typically used to fund capital improvement projects has become extremely inconsistent and unpredictable. A proactive understanding of this strategic aspect of your club’s finances is the key to avoiding the dangerous downward cycle we call Capital Starvation. It starts with three key questions.

Are You Asking the Right Questions?

#1. How much capital does the club need?
It isn’t unusual for clubs to ask “how much do we have in the capital reserve account?” That question usually comes up right after something major breaks—like the irrigation system or the HVAC system. Some clubs take a slightly less reactive approach by attempting to save at a rate that will at least cover depreciation. In a truly proactive approach to capital income, the question becomes “How much do we need and when are we going to need it?” How much money a club needs to address its capital projects is not a mystery. The number can be predicted and many clubs commission a Capital Reserve Study to get a clear picture of their long-term capital needs. Naturally, capital needs vary from club to club.

Chart Shows Data for All Clubs
Capital_Fund_Balance.png

#2. Are you producing enough capital to meet the club’s needs?
About 63 percent of clubs say they have a capital income account, but for roughly 25 percent of those clubs, the balance of the account is zero. You either are or are not currently producing enough capital to keep up with projects as they come along. Remember that in a proactive approach, the focus is on understanding what the club’s needs will be over the long term. How much is “enough” varies from club to club, but for scale, we like to look at capital generation in relation to the club’s total operating revenue. Industry data shows clubs at the median produce an amount equal to about 11 percent of their total operating revenue. At the 25th percentile, the number is 6 percent, which is a position we consider somewhat Capital Starved. About 15 percent of clubs are in the dangerous position of having either zero money for capital improvement or worse, depleting capital funds to support the club’s operational needs.

Net_Available_Capital_Ratio.png

#3. Are the club's sources of capital predictable and consistent?
The three most common sources of capital are Initiation Fees, Capital Dues and Capital Assessments. In larger clubs, surplus from operations can be a significant source of capital income. Smaller clubs tend to lean more heavily on capital dues and capital assessments. Capital Dues represent about 33% of Total Capital Income for the average club.

Sources_of_Club_Capital.png
With no real way to predict how many members will join the club in any given month, depending on initiation fees from new members as a sole source of capital income is risky. To smooth things out, many clubs (about 60 percent) use Capital Dues to serve as a baseline for choppy Capital Income. In that scenario, initiation fees become an additive to capital dues, giving the club a much more reliable and predictable flow of funding for projects, replacements and improvements.

Benefit of Capital Dues

Understanding your club’s capital needs and managing its sources of capital income proactively is the key to avoiding capital starvation and keeping your club on a healthy, sustainable path.

WATCH THE VIDEO
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Better Governance Begins with Board Education 

Board_Orientation.pngOne of the most unusual aspects of life as a professional club manager is the idea that you get a new boss every year or two thanks to board turnover. Over two or three decades in the business, you could potentially work for dozens of club presidents and hundreds of different board members. Many of those bosses will be strong, positive leaders, some will be neutral influences, and then there are the others—the agenda-driven or opinion-driven presidents or board members who leave you questioning your career choice and fighting to keep the club healthy and on track until the next election.

Frequent turnover of a club's board can be tough on the management team and it can be even more hazardous to the long-term health of the club. Without a consistent framework for governance that replaces opinion with fact and relies on data rather than emotion in the decision-making process, it’s very easy for clubs to lose sight of long term plans and drift away from their original mission over time.

Laying the groundwork for a standard of governance that will withstand time and leadership transitions isn’t easy, but it is possible. It starts with board education and it requires consistency, patience and a plan.

The first step in a proactive approach to strengthening your club’s governance model is to take a good look at the information you’re providing for board members at the beginning of their terms. Consider that each of these successful individuals brings with them a deep knowledge of their own particular business. While that unique perspective is an important part of their value as a board member, it is imperative for them to understand from the very first meeting that unless they happen to be a private club manager, the model of their business is not the same as the club business model. 

Typical board orientations tend to focus on club financials, board policies, long-range plans etc. Ideally, establishing a common understanding of key facts and what matters (or doesn't) in terms of financial and operational success would start right there—as part of the orientation process. Imagine what might be accomplished in future board meetings if every board member started his or her term with a solid grasp of even just a few essential facts about the club business model. For example, the difference between and significance of dues revenue and food and beverage (F&B) revenue. The following are examples of just a few core concepts that could serve as a starting point for your next board orientation:

1. Food & Beverage is an Amenity, Not a Profit Center

While it is unquestionably one of THE most important amenities in any club, F&B does not function as a profit center. It’s a concept that most boards have a hard time embracing, but we’ve found that graphic illustrations like the chart below can be very helpful. The pie on the left (which reflects real data from more than 1,000 clubs) represents the sources of a club's revenue. The orange slice (29 percent) represents revenue coming from F&B. In the pie on the right, we net out revenue-producing departments to look at sources of the club's gross profit and the F&B slice disappears completely. According to our data, about 70 percent of clubs in the United States subsidize their F&B operations: in the other 30 percent, F&B represents only a tiny percentage of the money the club has available to fund to its operate. For more on club F&B revenue, visit www.clubbenchmarking.com/food-and-beverage.

Revenue_and_Gross_Profic_Breakout.png

2. Clubs are in the Dues Business

This is an essential concept, and yet it's one that some board members will spend their entire tenure trying to avoid. Club industry data in the chart above shows that dues revenue makes up nearly 50 percent of all the revenue a club produces. The profit margin on that dues revenue is 100 percent. When you net out all the revenue producing departments including F&B, money from dues represents 73 percent of the remaining dollars available to cover the club's fixed expenses (the club's gross profit). Every board member should be very clear on the idea that achieving and maintaining a healthy flow of dues revenue is a top priority and the key to the club's long-term financial sustainability.

3. Dues Rate and Member Counts Go Hand-In-Hand

Dues_Engine.pngHealthy dues revenue requires a proper balance of dues rate and member counts. We call that combination the “Dues Engine.” and having discussions in the boardroom about either dues rates or member count in isolation blurs the critical relationship between both "cylinders" of the engine. You’ll find a video that lays out the concept of the Dues Engine in our video library at www.clubbenchmarking.com/club-dues

Laying the groundwork for an effective and enduring governance model is a solid investment in the future of your club, and it begins with a committment to fact-based board education. 

We presented the idea of simple facts as a foundation for board orientations during a webinar in 2014.
That recorded session expands on this article and it is available at www.clubbenchmarking.com/board-orientation 

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navigate_club_board_educationBeware of Dragons...

Fair warning: The case study you’re about to read may be disturbing for even the most seasoned club leader. Any resemblance between this story and your worst nightmare is purely coincidental.

In medieval times, elaborate drawings of fierce dragons were used to mark the boundary between the known world and whatever certain danger might lurk beyond. Those who dared to defy conventional wisdom and venture past those limits were labeled as fools or heretics destined for disaster. In the modern world, business leaders are often called upon to face down “dragons” and navigate through unfamiliar territory in the process of executing a critical initiative or bold strategic plan. Unfortunately, and far too often in the club world, boardroom politics and personal agendas can block crucial information and sabotage the clear fact-based decision making process necessary to push on toward success. The belief that club food and beverage can be relied on as cash generating profit center rather than an amenity for members is arguably the club industry’s most notorious and persistent dragon. The real case below highlights what happens when chasing F&B business is placed above making sure the club’s dues engine is healthy.

Club Background: This cautionary tale begins in the boardroom of a long-established country club that has been part of its local community for nearly one hundred years. After a lawsuit almost a decade ago, the club was still struggling to regain its financial footing under the weight of considerable debt. The suit and subsequent economic downturn caused member counts to drop significantly and club leaders were anxious to reverse the tide and expedite the recovery process. In an effort to clearly identify the club’s strengths and opportunities for improvement, the club’s GM became a Club Benchmarking subscriber. Working closely with CB Co-Founder & COO, Russ Conde, they completed the data entry process and analyzed a variety of standard graphical reports in order to develop a plan of action.

As you will see in the detail below, the data clearly showed that through creativity and cost control the GM was actually patching up weak dues revenue with significant profit in F&B. They were taking steps that would not be acceptable in most clubs, but the club was generating F&B profit equivalent to dues from 35 members. The F&B performance was in the 95th percentile—clearly not much room for improvement there—and yet the club’s board remained convinced (erroneously) that the solution to their financial woes lay in even more F&B banquet revenue and more profitability from F&B. In reality, the board was out to slay a dragon, but unfortunately, they wanted to slay a dragon that had long ago been tamed. The true root of the problem—membership count—was obscured by the board’s singular focus on F&B as the answer to the club’s financial pressure.

Benchmarking Process: The benchmarking process began by running the Available Cash and Key Performance Indicator Report, Food & Beverage Report and Membership Report using the club’s data. Click here to view a sample Club Benchmarking report

  • Available Cash/KPI Report Findings: As the club’s management team suspected, the Available Cash & Key Performance Indicator report showed the club’s Net Available Cash was near break-even and at the 47th percentile nationally. The pie chart illustrating the clubs proportionate sources of cash revealed several anomalies, most notably the fact that the proportion of cash coming from membership dues was 25 percentage points below national norms (53 percent versus 78 percent as a national norm) and that F&B net was contributing a significant proportion (17 percent) to Available Cash with the national norm being a consumption of 3 percent of Available Cash. Clearly F&B outperformance was helping to mitigate insufficient dues revenue.

  • F&B Report Findings – The CB benchmark data clearly showed the club’s F&B operation was performing well beyond national norms from a financial perspective. F&B profitability was at the 95th percentile. Essentially, from a financial perspective, this club’s F&B department was operating as efficiently as possible. While 75 percent of all clubs consume operating cash to subsidize F&B, this club was producing 17 percent of the cash to run the club from F&B. Those results were attributable, at least in part, to extremely low labor costs in that department. F&B labor was 30 percent of F&B revenue (literally the 1st percentile) in contrast to the national median of 62 percent. The club’s F&B revenue per F&B FTE (full time equivalent employee) was very high—the 73rd percentile—which indicates a lean workforce producing very strong results. Management relied on a variety of measures to achieve those results including as-needed, part time college student hires.

  • Membership Report Findings – The club’s member count relative to clubs of similar size was very low (the 13th percentile) and the member turnover rate was very high—13 percent versus the national median of 5 percent. The initiation fee had been eliminated (national median for an unrestricted individual member in 2011 was $16,000), and the club’s investment in member marketing was lower than 75 percent of all other clubs in the country. Full Member Equivalent Count (total dues revenue divided by full member dues rate) was at the fourth percentile nationally, meaning the normalized number of members at the club was less than 96 out of 100 clubs in the country.

Data-Driven Results: This is not a typical CB case study. There are countless others where use of CB has had positive impact on a club.  This is a story about lost opportunity.

Based on the CB reports, it was obvious that the club’s business model was seriously out of balance. The data clearly showed that the most urgent need was to revitalize the membership base and fee structures, but the board’s obsessive focus on low-margin F&B as a solution to the club’s financial woes was draining resources away from efforts to attract and retain members. The board should have been commending the management team for keeping the operational results whole via F&B outperformance, but instead they were hounding the team for more F&B. Despite the overwhelming evidence, and the best efforts of the GM, the board chose not to accept the facts and instead stayed mired in the F&B über alles mindset.

This club’s board lost sight of their fiduciary obligation to utilize facts in their stewardship of the club, ignored the data available to them through their CB membership and declined an offer from the Club Benchmarking CEO and COO to provide a free on-site presentation and interpretation of the club’s benchmarking reports. They held fast to their own perspective on the club’s financial challenges, adamant that weak F&B performance was to blame despite an abundance of data to the contrary. They drew swords over expenses that CB reports showed were well below national norms including executive salaries, total labor expenses and a series of other critical expense benchmarks.

As you may have guessed, during this battle key members of the club’s management team, including the GM, were asked to leave. The board was intent on replacing them with “better F&B people with better skill sets” in order to book more banquets, essentially guaranteeing that the bulk of future management effort will be directed to F&B rather than membership growth. The prospects for the club’s eventual recovery seem in doubt absent a dramatic shift in the board’s internal dynamics and a willingness to govern based on fact rather than opinion or agenda. It’s a frightening story to be sure, and one that we hope will serve as a reminder of what can go wrong when opinions, guesswork and personal agendas compromise the ability of a club’s leadership team to rely on credible facts and data in the execution of its duties.

There are important lessons to be learned on two fronts in this case study…

Club Management: Be proactive in using data to help the board understand the business model of a private club and what drives that model. This takes time but it can change the dynamics and results of the club and set a proper foundation for board vs. club management roles and responsibilities. Taking a passive approach to board education increases the likelihood that a "nightmare board" will eventually find you. If you are facing a situation similar to the one described in this case study and would like to brainstorm with our team about the best way to get through to the board, please don’t hesitate to contact us.

Governance: Seek knowledge about the club industry and the business model of your club. Ask questions more often than you give answers. Don’t accept "because I just know" from fellow board members. Push for facts and data as you would in your own business. The tools exist for every board in this industry to be properly informed and thoroughly equipped for success.

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woman paperwork frustrated 300Three Good Reasons to Rethink Data-Sharing in the Club Industry

One of the most remarkable things about club industry professionals is their willingness to share ideas and information. Unlike many other industries, when a fellow club manager is in need of information, camaraderie almost always trumps competition. Networking and conversational exchanges are an important part of that friendly culture, but another very common practice – informal data-sharing in the form of spreadsheet surveys circulated via email and telephone round-robins – is problematic for a number of reasons you may not have considered:

1) Time is Money

Take a minute to think about how much time you and/or your controller have spent over the last 12 months responding to information requests from your local and national industry peers including fellow chapter members. Many club managers have told us that over the course of a typical year they get at least a dozen emails or phone calls with questions like “how much did your dues go up last year?” “What’s the starting age for your senior membership category?” or “How much are you charging for a martini?”

One of the primary drivers behind CMAA’s annual survey effort is to develop a robust centralized database via the Club Benchmarking platform so that any time you or a colleague need information, it’s right there waiting for you. The answers to the three questions above plus hundreds of others are readily available in the CB database.  As a CMAA Chapter member, you can save time by entering your information one time, in one location, as soon as you’ve finished your year-end closing. Then the next time a question comes your way, remind the interested party that they can find what they’re looking for in the Club Benchmarking database and CMAA’s Club Industry Reports.
Club Benchmarking Member List

2) The Right Stuff

The obvious motivation behind informal data-sharing is a desire for information, but if that information is going to be put to use for the benefit of one’s club, it needs to be credible, reliable and actionable. The right data can help you make a critical decision, validate current management performance, or modify a course of action. The problem with informal surveys is that the end product is often not much more than a stack of numbers in an excel spreadsheet. Whether or not those numbers are accurate depends on how comfortable respondents felt participating in such a public exchange of information, and sample groups are often too small and incongruous to produce any conclusive information. Without proper analysis and the additional information necessary to put the findings in context, there is really no way to safely apply or take action on the information at your own club.

CMAA made a decision in 2010 to adopt Club Benchmarking as the platform for the Association’s annual surveys and endorse it as a reliable resource for CMAA members based on CB’s ability to gather, analyze, and interpret comprehensive, actionable industry intelligence.

3) Law and Order

The most overlooked pitfall of informal data-sharing is the lack of anonymity. In addition to the fact that open exchanges may compromise the quality of the information gathered as mentioned above, it is important to note that sharing data in a non-aggregated format where the source is easily identifiable is prohibited by Federal Trade Commission Antitrust regulations. The Club Benchmarking platform and reporting functions are designed to provide complete anonymity for survey participants, and built-in safeguards in the filtering tools ensure that sample group sizes comply with FTC regulations.

As a Chapter member, making strong local and national participation in the CMAA annual surveys a priority is a win-win; for your club, for your Chapter and for the club industry as a whole. 

 

 

 

 

 

 

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