Ray Cronin of Club Benchmarking released an eye-opening white paper to the industry on the importance of forward-looking capital plans, strong balance sheets, and the indisputable fact that private clubs compete on value, not price.
A club’s income statement is not the only important measure of club health. It’s only a gauge of a club’s ability to deliver service and amenities to its members. The money flowing through a club is consumed by the members’ everyday use of the club. Most clubs aspire to breakeven operationally. That’s okay, but it is not the real driver of long-term success.
Capital investment and a growing, strong balance sheet are the real financial drivers of success. Cronin calls this “Net worth over time (NWOT)” and states it is the true key performance indicator. Using data from over 2,000 private clubs, Cronin found that NWOT was shrinking at 50%, stagnating at 15%, and growing at 35% of the surveyed clubs.
Cronin stated, “Don’t look to simple answers like cutting price. Focus on your club’s value proposition and aim to ensure your club offers a compelling member experience. Create a forward-looking capital plan that is the root of sustainable financial success.” This includes one designed to retain and attract the most new members, not projects favored by just a few fueled by personal agendas.
We could not agree more – and have been beating this drum for years. In the long run, clubs can’t cut their way to prosperity. They can trim their way to efficiency. That’s just good business. But, continually postponing investment can spark a disastrous downward spiral: less investment results in decreased member satisfaction and thus fewer members, which results in less dues and fee revenue, which triggers dues increases and assessments, which causes more attrition, and, well, you can see the train wreck coming.
A strategic capital plan that engages the members in the process is the way forward. Professional management and superb boards know how to make this happen.