blue_golferKnow Your Club's Golf Experience Index

The experience of a round of golf can take on endless dimensions. Some days you may struggle through four hours of intense frustration and end up wondering why you play the game at all. Other times, you find yourself enjoying the Zen-like experience of being "in the zone." The mental experience is only one aspect of a golf round, but it’s undoubtedly the one that keeps us all coming back for more.

One perspective that a player typically does not consider, but those of us in the club management business should be aware of, is the value of the golf experience. What does it really cost to deliver that four-hour slice of club life? And if members are bringing guests out to experience the course, how does the cost of that experience compare to the price they actually pay for it—aka green fees?

Of course we all understand that there is no incremental, or variable, cost associated with a guest coming out to play. That's why guest green fee revenue is so valuable. It flows directly to the bottom line of the club. From that perspective, we are happy to collect whatever fee we charge. But is there a way to gauge the cost, or value of a round for either a member or a guest? And further, in the case of the guest fee, is there a way to compare the actual cost with the fee we charge. We believe there is and we created an index in Club Benchmarking called the Golf Experience Index as a way to measure it. The index is available to Club Benchmarking members in the Golf Operations Report View a Sample Report

Calculating the Golf Experience Index

STEP 1:  We start by calculating the Golf Experience Cost...
(Annual Course Maintenance Expense + Golf Operations Labor) ÷ Annual Rounds of Golf

This provides the delivery cost of a round of golf at the club. The median cost-per-round for the industry is $74, but as you can see in the chart below, the range is very wide—from about $40 per round up to nearly $200 per round. Click the chart to enlarge.

Golf_Experience_COST

STEP 2: To calculate the Golf Experience Index, we simply divide the guest green fee by the Golf Experience Cost , so Guest Green Fee ÷ Golf Experience Cost = Golf Experience Index

A value greater than 100% means you are "covering your cost" and achieving experience margin over and above the cost.  A value below 100% means your guest green fee is at a discount to the cost of delivering the experience. The median value for the industry is 120%. The chart below shows that again, the range is wide, varying from 50% to 250%. It is important to note that about 70% of the clubs have an index greater than 100%. That may be food for thought  for clubs with an index of less than 100%. Click the chart to enlarge.

Golf_Experience_INDEX

Certainly many factors influence a club’s Golf Experience Index; perception of the club’s brand, the quality of the course, course activity levels, recognition of the bottom line value of guest play, etc. As is true of many Club Benchmarking metrics, we want to emphasize that there is really no “right” or “wrong” number when it comes to the Golf Experience Index. What we offer is an established benchmark which can serve as a point of reference in discussions about the club's priorities and as a guidepost for the decision-making process. Because it relates so directly to the bottom line, we encourage clubs that subscribe to Club Benchmarking to login and review their own club Golf Experience Index. Understanding your position on that curve will help you determine whether an adjustment might be beneficial to your club. 

CB MEMBER NOTE:

  • Login to your CB account
  • Click on Finance & Operations
  • Click on the My Reports tab near the top of the page
  • Scroll down to run the Golf Operations Report
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What Spending on Golf versus Other Sports Says About Your Club’s Identity

AC_PLAIN

Dividing the Pie 
In the club world, much like in our private lives, the need for funds is often greater than the supply. As individuals, we prioritize competing interests on a regular basis—a new car, college tuition, family vacation, etc. For the club manager and board member, the struggle manifests itself in the budget process, where the true tribal nature of clubs comes to the surface. One group of members may be focused on golf while another contingent is keen on non-golf athletic amenities such as tennis, aquatics, fitness, squash, croquet, etc. Some golf-focused clubs may be feeling the pull to add non-golf facilities in order to re-connect with existing members or win over less golf-centric prospects.

While the money to build non-golf amenities (fitness centers, tennis courts, etc.) most often comes out of capital funding sources, sustaining the new amenity requires operational dollars from dues or other surplus generating departments. Simply building a tennis court or fitness center does not necessarily mean it will generate incremental operational funds, which raises an important question: "How much will it cost to operate the new facility and where will that money come from?"

Patterns in the Pie
The Financial Insight Model is a strategic framework for understanding a club’s proportionate sources and uses of gross profit. Early on in our study of industry data, it became clear that clubs typically spend about one-third of their gross profit on course maintenance. That number has proven consistent across the industry. Another very interesting pattern that emerged from the data is a direct relationship between course maintenance spending and the spending for non-golf sports amenities.

Club Benchmarking data shows a marked consistency across the industry where the combined percentage of gross profit going to course maintenance and the operation of non-golf amenities typically totals 40%. Golf-only clubs spent about 40% of their gross profit on the course and nothing on non-golf sports amenities, while clubs that have very significant non-golf sports/spa facilities are spending an average of about 15% on those facilities and 25% on the course. Within the spectrum, we find clubs allocating 30% course/10% non-golf, 36% course/4% non-golf, etc. This is one of the most clearly-defined patterns we have seen emerge since we began studying club industry data in 2009.

Walk the Talk
Does your club’s allocation of operational dollars align with its goals? Does your spending reflect that of a dedicated golf club, a diverse country club with a family focus, or some variation on those themes? There is no right and wrong here. Just the revelation that a club can instantly see and understand whether its actual spending is in line with its stated strategy -- or not. If you claim to be a family-friendly club with amenities for the whole family and you are allocating 30% to the course and 10% to non-golf sports, you are staying pretty true to that objective in your proportionate spending. If the balance is 37% to course maintenance and 3% to non-golf sports, your spending is inconsistent with the family-friendly claim.  When it comes to facilities and club culture, you can't be all things to all people. You have to make a strategic decision about what kind of club you want to be and then target spending in a manner that supports those goals.

Additionally, with this new-found understanding, a club thinking about expanding its offerings can extrapolate and estimate the impact of those changes on their budgets and funding needs. Most often we see golf clubs attempting to build and offer non-golf activities. The net result could mean a reduction of course maintenance spending to support the new operations, or it could have no impact on the course budget if the new amenities succeed in attracting new members and the associated increase in dues revenue.

Conclusion
The club business model is defined by the relative uses of operational funds. One of the relations made clear by actual industry data is that 40% of a club's gross profit is allocated to the combination of course maintenance spending and non-golf sports spending. Understanding the direct connection between course maintenance spending and non-golf sports spending as it relates to the club’s strategic goals is pivotal for managers, boards and members as it can serve as a catalyst for meaningful discussions and help align disparate tribes (e.g. golfers vs. tennis players) around a common goal.

CB Member Note:
Login to your CB account and run the Gross Profit - KPI report from the My Reports tab to check your Golf/Non-Golf spending pattern.

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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.

06_18_13_2

(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.)


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For Better or Worse
The Unromantic Truth About Wedding Business 

Wedding CakeFood and Beverage is certainly one of the most important amenities in a private club, but it's also one of the most misunderstood in terms of its financial impact. Many boards get fixated on increasing F&B revenue as a solution to the club's financial woes. In particular, they focus on weddings and banquets, believing higher profit margins associated with those large events will produce the revenue boost they need.

Like virtually every other decision club leaders must make, the positioning of F&B in the club is a choice. Should Food & Beverage be viewed as an amenity or as a profit center? To help us weigh those options, let's take a closer look at the impact of high-volume banquet business in an actual club. 

Benchmark Study: In the quest to increase revenue, the true costs associated with high-volume banquet business—financial and otherwiseare sometimes overlooked. Case in point: A financially healthy, high-end country club with a positive net operating result and the physical capacity to handle very large events. The club had become a popular wedding venue—so much so that they were averaging about 50 weddings per year and demand showed no sign of slowing down. The for-profit club’s total banquet revenue was in the top 10 percent nationally and made up 43 percent of their F&B revenue vs. an industry median of 30 percent. While a club in this position might be tempted to look for ways to accommodate additional business, this club’s board and manager recognized the need for a careful cost/benefit analysis based on industry data. 

The Downside: One of the most significant areas of concern for this particular club was member displacement. The volume of weddings was impacting members’ access to the clubhouse nearly every weekend. Over time, the members adapted by packing the club on Friday nights and avoiding it completely on Saturdays. Since a major component of the membership value equation is a feeling of privilege and privacy, the situation was less than ideal in terms of both member satisfaction and the club's ability to appeal to prospective members.

Another troubling issue for this club was the amount of management resources and energy consumed by the marketing, booking, and delivery of so many banquets. In addition, while the exact costs would be difficult to isolate, increased banquet traffic in the clubhouse was taking a toll on the facility itself, increasing housekeeping and maintenance expenses and potentially accelerating replacement cycles for banquet-related furniture, fixtures and equipment. The question this club's leaders were asking themselves was "is it worth it?"

Financial Impact: The ratio of F&B Net Income/Loss as a Percentage of Gross Profit was used to determine the relative significance of the club's F&B operation to its overall financial health.  In fact, for most clubs a full 80% of revenue comes from two items – Dues (50%) and F&B (30%). However from an impact perspective the dues revenue represents 80% of a clubs gross profit whereas F&B generate zero gross profit.  This reinforces that clearly all revenue is not created equal in clubs. Industry data confirms that 75 percent of clubs lose money in F&B and this particular club was in the 81st percentile, so somewhat profitable in F&B. Still, despite all the volume and effort, the club’s F&B operation was producing just four percent (4%) of the club’s overall Gross Profit. For this particular club, that 4 percent equates to about $250,000 which begs the question: Could the same amount be generated through less intensive and invasive methods such as membership drives, outings or minor price adjustments?

The chart below summarizes F&B Net Income/Loss as a Percentage of Gross Profit for clubs with golf and clubs without golf. 

F&B Net Income/Loss as a Percentage of Gross Profit
(based on National club industry data)

 

25th
percentile

MEDIAN

75th
percentile

Clubs with Golf

 -9%  -4%  0%

Clubs w/no Golf

-9%

-2%

+2%

Conclusion: This case study reinforces what club industry data clearly reflects: F&B in the club industry is a vital amenity, but it is not a profit center. The benchmark data helped our case study club make a very important choice—to refine their banquet strategy in terms of “quality vs. quantity.” This club's leaders recognized that lifecycle gatherings such as birthdays, anniversaries and weddings are a high value amenity for their members and those events continue to be a key part of the club’s culture. Emphasis on “off the street” banquet revenue is greatly decreased and the club's leaders are now focused on a more balanced view of other sources of Gross Profit such as new member dues or golf operations revenue.

FandB_in_context.png

 

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club financeRevenue Realities in Private Clubs

In any business, strategic leadership demands consideration of one essential question: How can we deliver value to our customers in a way that fulfills our financial objectives? The answer to that question shapes the company’s business model. In most cases, it’s fairly simple—a company creates a product and sells it for a price that exceeds the cost of producing it—but in the club industry the financial realities are not quite so straightforward. Private clubs provide a variety of products and services for their members, but not all of those products or services generate revenue, and, of those that do, not all are profitable. The business model for private clubs is unique.

In the February 2013 edition of NCA CONNECT, The National Club Association's monthly e-letter, we explored a traditional revenue and expense view of club finance, which assumes that 100 percent of the revenue produced is available for redistribution into operating costs. Recent in-depth analysis of aggregate industry data has confirmed that while the revenue and expense model may be appropriate in other industries, clubs operate in a very different reality where all revenue is not created equal. Some club revenue is highly burdened with cost (e.g., F&B revenue), while other revenue is pure, unencumbered cash (e.g., dues revenue). Clubs need to adopt a different perspective in order to better understand their actual business model.

This alternate view of club finance, known as the Available Cash Model, moves beyond a traditional revenue view by clearly identifying the money a club actually has to operate. The Available Cash Model addresses the net operating cash generated and the allocation of that cash among a club’s non-revenue generating departments.

Available Cash Model
*(Golf component only applies to clubs with golf)
Operationally, Available Cash is consumed covering the fixed expenses of the club.
Available Cash Model
*(Golf components only apply to clubs with golf)

Understanding the difference between revenue sources and available cash sources is an important step in identifying which facets of a club’s operation are actually impacting its financial health. Board members often come from the business world where financial decisions are based on a traditional view of revenue and expenses. The Available Cash Model addresses sources and uses of cash by netting the major revenue departments to more accurately reflect the business model of a club.

Ultimately, the key difference between Revenue and Available Cash is the F&B operation. Seventy-five percent of the clubs in the country break even or lose money in F&B (the vast majority lose money). The average club derives 30 percent of its operating revenue from F&B, so for 75 percent of clubs, 30 percent of the revenue produces no cash to run the club (in fact it most cases it consumes some cash). Chart 1 below shows the straight revenue view of clubs on the left and the Available Cash Sources view on the right. In the Available Cash Model view, analysis drawn directly from consolidated industry data shows the proportionate sources and uses of cash are nearly identical across all revenue ranges and geographies.

club finance
Click here to enlarge

As you can see in Chart 1, a key benefit of the Available Cash Model is that it puts the financial impact of F&B into context, allowing managers and boards to focus their discussions on more strategic issues. The longstanding debate over F&B profitability is cast in a new light when you consider that, while F&B produces about 30 percent of the revenue in the average club, in 70% of clubs F&B generates no Available Cash. At the average club 3% of the Available Cash is used to subsidize the loss in F&B. For the majority of the clubs in the country, the F&B operation has a minimal financial impact (positive or negative) on the club's finances, suggesting the considerations concerning F&B are best placed on service and quality—not on finances.
Chart 2 shows the national distribution of this ratio based on analysis of industry data from more than 1,000 clubs.
F&B revenue
Click here to enlarge

Over the last several years, many experienced club executives have expressed a clear understanding of the club business model and the limitations of trying to have strategic discussions based on a revenue and expense view of club finance. Their conversations with industry peers have confirmed that F&B performance is relative—for one club, a $150 thousand F&B loss may be insignificant, while another club would be devastated by those results. No matter what type of club these executives run, they know that $1 of food and beverage revenue is, in reality, nowhere near a full, usable dollar from the club’s financial perspective and, at the end of the day, clubs are in the dues business. The Available Cash Model makes it possible to use credible club industry data as a tool to affirm those instincts.

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