The Case Against Reducing Initiation Fees and Dues at a Private Club
Private Clubs that reduce or eliminate initiation fees lose a critical funding source for capital expenditures and diminish its perceived value.
Many Private Clubs are facing a dilemma of not having a waiting list or (worse) falling membership levels. The reasons, to name a few, range from changing demographic views of what a Private Club should offer, amenities that are not consistent with the desires of the current membership, or a membership that is not satisfied with the experience. When Private Clubs’ memberships are not at desired levels, the resultant decline in dues and initiation fee revenues negatively impacts a Private Club’s financial position.
The problem is that Private Clubs, particularly those with golf courses, tennis courts, pools and other physical amenities, have a healthy if not insatiable appetite for capital expenditures both to keep the facility in good repair as well as to provide additional amenities to attract new members.
Initiation Fees Support Capital Expenditures
In a well run Private Club, initiation fee income is an important element used to fund capital expenditures. The reducing or eliminating initiation fees is a tactic used to attract new members. By reducing or eliminating initiation fees, a Private Club loses a critical funding source for its capital expenditures. To the extent that reasons behind lower than optimal membership levels are derived from low membership satisfaction with current amenities and the condition of the facility, the problem of lowering available capital magnifies.
Membership Dues Fund Operations
Membership dues are the engine that funds the operations of a private club. When member counts are not at an optimal level, there is a temptation to reduce dues to attract new members or retain existing ones. The problem is that for every dollar of dues reduced, the ability to fund operations is adversely impacted by that same dollar. Similarly, reducing expenses used to support member services and amenities has the potential of negatively impacting the delivery of quality services to the membership, which carries the risk of increased member dissatisfaction.
In lowering or eliminating initiation fees, reducing dues, or reducing expenses that support member services, not only does a Club impair its value proposition to its existing and potential members, but risks financial downward spiral.
How does a club in need of members address this dilemma?
Every club should have a Strategic Plan. Such a plan should have the participation of a broad cross-section of the member (and spouses), broken down by age, gender and those with young families. With turnover in Clubs generally coming from older members and new members generally skewing younger demographically with families, it is becoming increasingly important that a Club’s leadership address the needs all its members. In preparing a Plan, thoughtful benchmarking should be employed, as well as an independent and anonymous membership satisfaction survey. Among other goals, the Plan should identify the needs of new members they want to attract and have a comprehensive membership development plan. The results of the Strategic Plan should be communicated clearly to the membership to help secure buy in, and it is recommended that updates on progress towards achieving those goals be periodically communicated to the membership.
In the meantime, pending the development and execution of an actionable membership development plan, a Private Club with membership level issues may want to consider right sizing the club around a dues structure and initiation fee structure that is competitive and sustainable.
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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