The 300 Club – Full Member Equivalents
300 Full Member Equivalents and Capital Resources for Clubs
While working with a very talented banker a few years ago, he made a comment that Clubs generally needed to have a minimum of 300 Full Member Equivalents (FME) before he’d get interested in extending credit. For whatever reason the thought stuck with us. While we’re not sure of any precise math behind the comment, or if such proof exists, the anecdotal evidence seems to support his thinking. As we’ve looked at the finances of many Clubs, a large percentage of those with less than 300 FME’s seem be in troubled waters with limited capital resources or are approaching that point with unsustainably high operating dues structures. Most are generally aware of the problem and are seeking to add members. They just don’t know how many are needed or how to factor in the difference in value of multiple categories. Critical mass appears to be achieved at close to the banker’s number of 300 Full Member Equivalents.
When we discuss the concept with Board members and General Managers, questions about calculating Full Member Equivalents often come up. The number of FME’s is the result of total dues revenue divided by the dues rate for the most highly privileged category of membership. It’s a way to standardize and compare Clubs that might charge dues differently by age, sports packages, etc. or are offering “deals” to attract new members. Some Clubs include all amenities for one amount while others choose to offer amenities on an “a la carte” basis or offer dues based on age groups or years of seniority. It’s a useful tool in benchmarking clubs when the number of total “members” would be otherwise misleading and for Clubs to measure their own growth as categories change. Also, many bankers will seek to include an FME threshold in the covenants of any loan agreement. The FME floor in a new loan agreement is generally a bit less than the current FME count but the wider the corridor the better for the Club.
While it is entirely possible for Clubs with more than 300 FME’s to get in trouble it is usually because dues increases have not kept up with expenses or they have not collected sufficient capital and initiation fees believing the lower prices will help retain or attract members. It’s not generally related to the raw headcount. At least not initially. The Clubs that recognize and address the pricing deficiencies are best equipped to avoid falling below the 300 level while maintaining and upgrading their service levels and capital base.
We will continue to monitor the FME measurement in our work to further test the theory. If you have any thoughts or experience that support or contradict the banker’s thought, we’d love to hear from you. It will add to our collective knowledge. We’ll follow up with another blog on this topic in the months ahead.
Club Board Professionals is a strategic financial consulting and training firm. The Principals, Dave Duval and Joe Abely, assist clubs achieve excellence in three areas: governance, financial sustainability and membership satisfaction. Contact us for a complimentary initial assessment of your club.
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