One of the effects of the COVID-19 virus has been a wake-up call for clubs to return to their original purpose. Clubs need to reflect on the basic mission of serving members rather than trying to run semi-public banquet centers, public golf courses for outings and trying to compete with for-profit entities to make marginal profits.
The pandemic has forced clubs to think and act strategically in order to have financially viable operations. Many private clubs today still need more members—and with 75% of all new members joining a club being under age 56, clubs need to focus on what this age group wants. These new, not so young members are not joining country clubs for banquet centers or good places to have golf outings. What these younger members value are club offerings that enhance family usage, offer good casual dining, have year-round recreation offerings, provide great golf and are places where a sense of community is created for developing friendships. Member-focused club characteristics provide high satisfaction and good value, and they have the income-producing result of creating full membership that results in maximum dues revenues. Also, dues revenue for clubs is 100% profit, whereas commercialized services might at best achieve a gross 30%, but in reality, a meager net 15% profit when all cost factors are considered.
ESSENTIAL CLUB MEMBER SATISFACTION
Every club must have a strategic plan to guide it. A club’s mission should clearly define its purpose and state:
- Who it serves
- What it provides
- What quality level it strives for
- What makes it unique in its marketplace
For a private 501(c)(7) club, profit should not be a strategic goal, but rather high member satisfaction and a full membership.
Clubs should not identify golf outings as a primary goal, but rather to have great golf that is not crowded. By subsidizing a club’s operating cost through golf events, clubs have seriously impacted their primary goal of member satisfaction. Consider whether your club does a marginal job with à la carte dining for your members and a great job of offering delicious food and service for nonmember banquet events?
According to McMahon Group’s survey research of more than 1,000 private clubs, 92% of members would like their club to be “one of their favorite places to dine,” but on average only 44% of members say it is. When testing members’ satisfaction with their club’s à la carte dining offering, 70% of dining programs are under-performing. This is not a price issue, but a quality, consistency and service issue. Many clubs take care of their nonmember dining business and ignore their own members’ needs. Why?
While dining is not the primary reason members joined the club, it is the most important club offering for members once they have joined. Clubs must return to their true mission of service to members and providing “very satisfied” members. Clubs must stop trying to run marginal profit centers that are negatively affecting members’ satisfaction.
THE MEMBER-FOCUSED CLUB
The member-focused club should be the industry’s goal, but what is a member-focused club and can it afford to operate one? Each club develops its own strategic plan and strategy for success. In today’s world, most clubs should be focused on serving the members’ family, offering year-round, high quality club activities and providing good value for the cost.
A club’s financial goal cannot be trying to run the most economical club. Clubs are in the happiness business—they are not commercial entities. Clubs are nonprofits that provide great experiences for members at good value. They build friendships that money cannot buy. Club mission statements should not include statements like being cost conscious. This is language for reduced spending, resulting in becoming a club that slowly goes out of business.
Today’s member-focused club has to have as its primary goal that of achieving high overall member satisfaction with all club offerings. This means that at least 50% of all members have to rate their club satisfaction level as “very satisfied” and at least another 40% of members as being “satisfied.” Members’ overall satisfaction is critical for club success. When clubs provide offerings at the very high satisfaction levels, especially those most important club offerings of dining, golf, wellness/fitness and clubhouse facilities, they have full memberships.
THE FACILITY CHALLENGE
Providing and funding the club facilities is critical to its success. Rarely do clubs adequately fund their facility depreciation on club assets today, and at best, most clubs only fund half of their depreciation annually—leaving hundreds of thousands of dollars in future liability. Club boards can mislead themselves as the depreciation costs continually mount; however, providing a deteriorating facility experience that discourages attracting and retaining members results in lost dues revenue. If clubs can keep full memberships, they can fund all depreciation. A major club challenge is to continually reinvest in order to make improvements beyond maintenance and depreciation.
How Capital is Raised for Facility Projects:
- Membership survey identifies facility needs and willingness of members to fund
- Planning Committee develops facility plan for members’ approval
- Finance Committee develops funding plan and bank financing
- Members usually have 3 funding options of monthly payment, upfront payment or combination of the two
Note: Monthly payment plan most used and raises twice as much funding than other two.
Clubs that stay current with the latest trends in recreation, dining, family programs, golf, etc., remain competitive in changing marketplace conditions. This is no different from any other business or organization that needs to continually reinvest in order to satisfy the needs and desires of its customers or members.
To fund these ever-changing facility needs, the question is always, where does the club find the needed money? Since major improvements are needed about every 10 years, clubs have to plan for this. There is always the opportunity to begin collecting future facility money in reserves, before it is needed. The best approach for being able to fund future facility projects is to allocate some future capital funds every year over the hypothetical 10-year accumulation period so a club has saved a third to a half of the needed future funding for its ten-year cycle projects. It is possible to develop a future facility funding cost estimate for anticipated additions so capital can be collected in advance of project need. Take for example, a club today studying the major six trends affecting club facilities. A club’s leadership can project its need to, for instance, enlarge its wellness/fitness facilities as they continue to grow in popularity, add spa-like amenities for women and more year-round facilities like golf simulators and coffee shop lounge areas. These facilities are all logical expansions that clubs will need if they don’t have them today.
By estimating the costs for such projects, a club can start putting money in reserve accounts. If a club can build future capital reserves for its 10-year-out projects, this makes it immeasurably easier to achieve member approval of them by lessening the need for large capital assessments.
When creating and funding future capital reserve accounts for long-term projects, it is critical that future boards cannot easily tap these funds for pet projects that influential board members can’t resist.
However, there is something worthwhile in how clubs fund major projects today. This process works better when members control what improvements are built—by way of member surveys—than by board decisions alone. When listening to members and proposing what they support, it is relatively easy to get project approvals. It is all about good communications justifying the need and costs with a funding plan that members support for projects they want. Developing, presenting and approving special facility improvement projects work when members get to control and approve each project based upon its merits, costs and feasibility.
FUNDING FACILITY PROJECTS
There are three basic ways to fund major club facility projects:
• Monthly capital dues funding bank loans
• Upfront capital assessments without loans
• Using a combination of monthly capital dues and upfront capital assessments
The dollar amounts members are willing to pay for each way of funding vary significantly with the monthly capital dues being by far the preferred funding source that can raise twice as much capital through bank loans.
However there are other facility funding methods that may pertain to each clubs’ own circumstances.
A partial list of these are:
- Use of excess cash-on-hand including unreserved capital funds.
- Possibility of selling excess land to generate capital, though this method has many detractors.
- Growing the membership and using new dues and initiation fees to support debt service on new loans. This option is only viable if a club first gets the new members committed to join before spending borrowed funds on projects. One way to do this is creating a new, nongolf membership category that sees value in added facilities that would attract the new members.
- Allocating annual cash flow surpluses and/or portions of initiation fees for predetermined projects.
- Developing and selling residential condominiums with developers on club land for club members only. Also clubs in urban areas can sell air-rights to neighboring buildings or trade for new facilities like the University Club of Chicago did.
Private clubs are in a game-changing world that is offering new opportunities that the industry never have thought possible. It is true, clubs can actually make lemonade out of our COVID-19 lemons if they think and act strategically. With a COVID-19 vaccine, clubs can soon get back to the basics of achieving their club missions, that of serving members, and quit trying to compete in profit-generating businesses that are not their mission.
If clubs focus on true membership satisfaction, they achieve full memberships. If clubs focus on continually changing with the times, they achieve full memberships. If clubs keep their facilities up to date, members don’t leave. Clubs in our society are changing. Clubs can either change with society or disappear. The saying has never been truer, Clubs that live in the past will soon be a part of it. Don’t let your club live in the past. Strategically invest in the future, and your club’s future will be bright.
Club Trends Winter 2021