By John G. Fornaro
“We’re in the dues business!” That’s often the sentiment expressed about the private club industry.
“We’re in the dues business!” That’s often the sentiment expressed about the private club industry.
What’s too much and what’s too little? What does it all mean for the future of private clubs? So what are the optimal dues?
The fact is dues for most clubs continue to rise. A number of factors are causing increases, including federal and state requirements, healthcare costs, pensions, insurance and utilities with increasingly high water costs.
At the same time members’ expectations for a greater member experience are rising…so, where’s the saw-off?
How much will members take before they say that’s enough, and leave the club? What’s the breaking point? What must boards of directors consider when settling on dues levels, increases etc.?
Certainly a club can do what it wants, but often it’s not so much a question of ‘can’ but what a club ‘should’ do. What keeps your members happy?
Based on inflation, water, health care, and electricity costs, course and clubhouse improvements, 10 years from now this likely means a 30 to 40 percent increase in a club’s expenses. Does that mean dues will need to go up 30 to 40 percent in 10 years? Will enough people want to pay those dues? And are we also pricing ourselves out of the market for younger members? What do you foresee? How do clubs prepare for the future?
These are all very important questions as the private club industry works on ways to bring in members, retain members and increase revenue. How much sensitivity is there about raising dues too much, too quickly? What are the deciding factors?
“There’s no perfect formula,” explained Bob Bodman, principal in Club Resources, a private club consulting firm based in Truckee, CA.
“It is a balancing act between how sensitive the members are to price increases, what value they are receiving, what the market is charging, what the club needs to accomplish with the dues (mission and purpose), what will attract or deflect new member growth and the overall attitude and pride the members have in the club.
“At the very least, most clubs should have a set schedule for what the dues will be for the next five years as a guideline, based on a set of strategy plan priorities. Variances from that schedule should be for extraordinary items. Most of the members’ sensitivity to dues has to do with inconsistency in the approach to dues and dues increases. Dues should be predictable so members can adjust and prepare for each year,” Bodman outlined.
“Dues increases become a necessary part of a club’s health, but the amount is the club’s single most critical annual decision. Part of the process is a competitive market study but this is only one part of the discussion because each club is different,” explained Frank Gore, chief analyst for BoardRoom’s Distinguished Club program.
“Many clubs want to have a low number of members, which means…higher dues levels per member. Others want to limit membership categories, so clubs with fewer categories will also need to charge higher dues per member. A club’s expense levels also dictate the optimal dues needed to cover expenses.”
Dues, Gore explains, “are about value. Most members at a fine private club can afford the dues, but they will not pay for something they do not believe is worth the price, nor will they pay for something they will not use.
“Clubs need to have programs to get all members to use the club often. The real sensitivity for a dues’ raise comes from the low or non-users.”
Oftentimes, ‘low use or non-use’ is a sign members are planning on leaving the club, which creates another hit to the club’s revenues.
“Dues are a measure of relevance and engagement so I suggest that private clubs are in the relationship business,” offered Henry DeLozier, principal with Global Golf Advisors. “If members’ relationships with their clubs are indispensable to them because they (the member) cannot imagine their life without the club, then the relationship is sound and mutually supportive.”
Mike Phelps of Pipeline Marketing suggests, “there are many methods available to determine ‘optimal’ dues, but successful clubs use a combination of tools (market -driven, value-based, etc.) and know that the member first is the key factor to consider.
“The more you know about your ideal target member for each category of membership, the better you’ll be able to provide what they value, and you’ll be more confident in what you’re able to charge.”
Any number of reasons creates the ‘break’ point for members, “but for clubs in competitive markets, it’s usually when there is an acceptable alternative. This boils down to supply and demand, and how your club compares in price and quality,” injected Phelps.
Steve Graves of Creative Golf Marketing offers a quite contrarian thought.
“The escalation of dues has done significant harm to the private club industry. The industry has attempted to use a business model of ‘fewer people paying more.’ That business model has failed miserably. Consequently, the ‘optimal level’ of dues is commonly lower than the current offering,” he outlined.
“For example, we constantly see private clubs with 125 members paying $245 per month for social dues. I would recommend the club have 245 social members paying $125 per month dues.
“Lower dues, in this case, would be the ‘optimal price’ for the membership offering. Unfortunately, clubs have painted themselves into a corner with their inability to properly market their memberships, as it pertains to membership retention and membership recruitment.
“Private clubs should strive to increase their membership base, allowing for lower, more stable dues. The business model of ‘more people paying less’ works and should be the benchmark for optimal dues level for which private clubs strive,” Graves opined.
“Healthy clubs in the future will cultivate demand in excess of their own capacity to enroll new members,” added DeLozier. “Our data indicates that approximately 6.5 percent of private clubs in the U.S. currently have a waiting list for new members coming into the club.
“The market proves the optimal dues level and there is a large volume of market data to support proper dues pricing. These market indicators include (in no particular order) housing cycle trend (consumer confidence), annual household income (disposable income plus pricing elasticity), educational attainment (preference of market for club memberships), and competitive influences (market comparable prices),” he outlined.
And the ‘break’ point?
“Too much is when there is inadequate underlying value received for the amount paid and collected. The deciding factors relate to three market characteristics: (1) market support for the club, (2) economic requirements for capital needs, and (3) brand authority within the local market,” DeLozier remarked.
“The breaking point is seldom the dollar amount as much as it is the perception of value-received. When members question the ‘worth’ of prices or services, this is an indicator that the value proposition does not support dues increases or pricing. Something like a canary in the mineshaft.”
Graves feels, ‘the constant and consistent strategy of raising dues has contributed significantly, to the high attrition and low membership growth.
“The break point,” he suggests, “is difficult to define specifically. The most passionate members (that percentage is quite small) will pay almost anything to be a member of their club. However, most members are ‘casual users and are much more sensitive to their dues obligation.
“Many private clubs have, simultaneously, increased dues while cutting expenses (and, naturally member experience) to attempt to survive. These counterintuitive efforts have exacerbated the downfall of private clubs nationwide.
“You raise dues, you lose members, you lose members, you raise dues, you raise dues you lose members (and it goes on and on and on!),” he lamented.
So what must a club’s board of directors consider when pondering a dues’ increase?
“First a club should always have an annual dues raise,” opined Frank Gore. “The starting point is using some index like the cost of living. Any dues raise above that index must be earned or justified to the general membership.
Phelps says that people chose to leave a club, “most will scribble either ‘financial’ or ‘lack of use’ on their exit surveys. Both are indicators that the member’s perceived costs have outweighed the perceived benefits that their club membership offers.
“To combat this, boards must consider how to bolster their member benefits, and ensure effective communication of these benefits both to prospective members and current members, “ Phelps offered.
“A club’s board must consider absolutely everything!” exclaims Creative Golf Marketing’s Graves. “Everyone says you should raise dues every year because expenses go up every year. I say that is unequivocally wrong, counterintuitive and counterproductive.
“For example: If your annual dues revenue is $1 million and you want a three percent dues increase. This will raise the club $30,000 in additional dues revenue. Let’s say your annual dues for a full member is $500 per month ($6,000 annually). Don’t raise your dues GET FIVE NEW MEMBERS!!! It’s the same amount of money!
“Every time you raise your dues you will lose more members,” Graves claims. “Commonly you lose more revenue in the loss of members than the revenue you are attempting to produce.
“Raising dues is the ‘easy way out! But, not the answer! Club leaders should be very cautious about even considering raising dues,” Graves maintains. “Keeping membership numbers strong allows for a private club to have more people paying less. The true formula to success.”
There seems to be consensus on one point – how dues will affect the next generation of club members? These potential members are sensitive to membership categories, what they can use and how much they’ll pay when looking for ‘value.’
“The next generation of club members have found it ‘hip’ to be ‘frugal’ and ‘cautious’ in their discretionary expenditures. They’re much more value oriented in their analysis of a private club relationship, and they are not as intrinsically motivated as previous generations of private club members,” Graves opined.
Phelps feels the present membership is aging out faster than clubs can recruit new, younger members. “Clubs must appeal to the next generation, and realize that this next generation may be completely different than their existing members. But fundamentally, I think clubs need to be much more aggressive in creating value for the next generation of club members,” he said.
“It’s all relative to the cost of living, value received and a pragmatic view of how much they use the club,” Bodman offered succinctly.
“Today’s dues are a signal of the value proposition of the club. If dues seem ‘fair’ it is because the value of the club’s brand – the perceived lifestyle and status proposition – are market attractive,” DeLozier explained.
“They want to ask, ‘Will I receive my money’s worth?’”
Gore agrees younger members and potential members are also “very value oriented. They will pay what something is worth. They will not tolerate a club wasting dues dollars.”
The entire private club industry is a “case study” because of the pitfall of the dues’escalation at the vast majority of private clubs, Graves offered.
“The ‘common denominator’ of almost every struggling private club is a dues structure that greatly exceeds the ‘value proposition’ of member experience and usage patterns. When private club life was the aspect of the consumer’s social life they didn’t have to be as cautious or careful as to what a person was paying for the privilege of club membership. But, those days are gone.
“Now, private club life is an aspect of the consumer’s social life who have many other outside activities that are vying for their discretionary time and dollar. Consequently, private clubs had better wise up to the fact that simply raising dues to cover financial shortfalls can be detrimental to both retention and recruitment efforts of the club,” Graves suggested.
Publisher’s Final Thoughts
A dues increase can be a complicated and risky proposition for any club, but the when, why and how of a dues increase can have a significant impact on its effectiveness.
The number one reason why members leave their club is the lack of value, or perceived lack of value. If you are having higher than normal attrition rates…people leaving…they’re obviously leaving because they don’t see the value in staying. However, if your retention rates have been high over the last couple of years you can begin to initiate a modest dues increase.
The key to this is delivering value before asking for more. Make your members want to stay. You can’t just tell members, “our costs are rising and we need to raise your dues.”
Focus on discovering the perceived value members have about what their club offers and the club’s strategic direction. Value is worth more than price but remember, the value is in the eyes of the members.
Also, please remember, when you raise a member’s dues, if they’re working, they’re paying with after tax dollars, so in reality, a $75 increase really becomes $150 to that member.
I believe the club’s newsletter, whether a printed handout or an online package, should always feature members who tout the club and the value of their membership. Use the members’ words verbatim on why the club is so important to them. There’s no question, your members can say it best…
The timing for raising dues can be strategic, but I suggest the beginning of the season is best…not January 1 of every year…just because.
Some clubs also have started nonprofit foundations to fund parts of their club’s facilities or amenities along with their operational costs. This is a great way to raise the required funds versus getting a bank loan and raising dues. There are some concerns with this type of funding but properly executed it can be a great way to pay for certain club facilities and their operations.
Private clubs in the future may want to create new categories of membership to help keep the dues down. Many clubs today are operating precariously, on the edge , so to speak. For these clubs multiple membership categories might provide a solution, including more social memberships, weekday memberships and additional junior or executive members.
At least that’s the way I see it!
John G. Fornaro, publisher
If you have comments on this article or suggestions for other topics, please contact John Fornaro at (949) 376-8889 or via email: email@example.com