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How to make an extra $166,400 in your operation this year

Jul 4, 2014   //   by Operations   //   Latest News

Though many golf facilities throughout Australia are operating in a somewhat profitable way, many out there are not, due to a whole list of reasons. One reason is many clubs continue to have a ‘not for profit’ mindset instead of the ‘commercial profit’ mindset needed to get the highest return on their investment. The ‘not for profit’ facilities should still try and make some extra money to put back into their membership coffers for any future needs. It still needs to be run like a business. How many of you would like to have extra money in the bank to pay for major upgrades to your clubhouse or course? Let me show you how to make an additional $166,400.

The 4-pillars of a golf business

The easiest way to find extra money at any given golf facility is to first break it down into four key operational areas or 4-pillars which are identified as revenue,servicepayroll, and expense. Each of these areas is then reviewed in detail to find key performance initiatives that can be improved.

For example,

The 4-pillars approach visually shown is in the shape of a diamond with the ‘revenue’ line running along the bottom point. Revenue is placed here solely because revenue ultimately supports the other three areas of the operation. Without revenue, the other three – expenses, payroll, and service cannot exist. Expenses and payroll sit on the right and left point of this diamond. Service sits on the top and needs to be fully supported and balanced by these other two. So where do we start?

Setting some benchmarks

Our golf facility currently is attracting a mix of member (80%) and public (20% including some corporate) play with close to 1,100 members in total. The full membership category is paying $1,250 each in annual dues with the public full 18-hole walking fee rate at $35. They are experiencing approximately 47,000 rounds of golf played on the course each year. One note here is that clubs should be tracking rounds by category on a daily basis. This operational practice is one of the most important things any club manager should be doing. Every part of your business is financially derived and tracked based on the amount of rounds actually played. It gives you a common denominator to compare against. Now that we have set some operating benchmarks, what comes next?

How we did it

Using a simple Competitive Market Analysis (CMA) exercise, we compared several rates and services in various key categories against the Top 5 competitors within a 20k radius of the facility. This information showed us exactly where we were positioned in our marketplace. We now can easily evaluate if we need to raise or lower rates. Another valuable exercise is to review the golf playing patterns for the course including actual price per round played in the various price points available. This is a little bit of work, but ideally you would list player numbers for the different days and seasons to find out average rates for the different times of the year. Using various pricing strategies and value-adding techniques, our goal was to increase the per-round spend by a mere $1 (47,000 rounds) or an overall revenue increase of $47,000. I know, it sounds simple – and in many cases it is.

Our course was projecting to have a $257,000 financial shortfall in the total operations for the 08/09 financial year. Our operational assessment challenge was to get this to break-even in the next financial year.

An extra $166,400 in the bank

How to increase revenue by $104,400

Membership revenue is the key to steady growth

We compared all pricing and categories against the local competitors and found members were paying $150 per year less than the nearest competitor in the category that was most held at our club (700 in total) even though the facility and services provided were well ahead of them. A price increase of $200 for this particular category was the most viable option to get in line with market value, though we would have to stagger it over three years. This type of increase is very sensitive to members and had to be presented in a very cautious way so as not to lose them. It will be implemented as follows: $100 in first year ($70,000 improvement), then $50 in second year ($35,000) and third year ($35,000). So in three years’ time, they will increase revenue in this one particular category by $140,000.

The easiest way to increase green fee spend

By breaking down the 47,000 rounds that were played each year we found 10% of them (4,700) were paying the full rate of $35 per round. The CMA review showed us we were charging $5 less than our nearest competitor and by adding a small $2 increase we would still be very competitive. This increase would return another $9,400 annually and still keep the total rate with cart under the magic $50 threshold.

Drive your way to more $25,000 revenue

The last of the major revenue lines to be reviewed was the driving range income. Same strategy was used as before with a small increase of .50c on each bucket size along with introducing a large size to our choices. A loyalty card worth $150 was also introduced and sold for $105 (30%) savings. This is a very busy range so projections were for a $25,000 increase in the first year.

How to save $15,000 a year on expenses

It is all in the procedures! Inventory control in the Food and Beverage department did not even exist and lacked any clear process in how orders were received when delivered. Invoices were not being checked against content in the boxes and there was not any secure place for items to be stored. We calculated a 1.5 % savings in this area on $1million in sales with a few new procedures and better control of beer stock by locking the cold storage areas up from passer-bys. An easy savings of $15,000!

How to save $62,000 a year on payroll

Start by throwing away your current organisational chart and compiling an‘ideal’ chart. If you were opening a new facility, how many staff would you really need? Now the hard part – take your old organisational chart out of the bin and lay it over the new ‘ideal’ chart. How many extra staff do you have or how many do you really need to drive the business forward? In our case, we had to consolidate a few staff job descriptions and let one staff member go. This resulted in a much more streamlined approach to our operation with an annual saving of $62,000. 

How to improve service to generate more revenue

Our biggest service issue was Pace of Play on busy days. We were getting a bad reputation in the area and member satisfaction was getting low. Our review this time was with our roster compared to our golf playing patterns. We identified that the Course Marshall was starting work too late at 8am. The first groups off in the morning were starting at 6am. Our Pace of play was already set for the day by the time he arrived and there was no way to really improve the overall pace. Our solution was to simply readjust the Marshall’s start time even though this added two extra hours onto the day. This increased payroll by $15,000 annually but was worthwhile to resolve the service issue. Generally staff needed basic training about consistent service standards which would inturn raise the service standard for the entire facility and attract more members and players.

What are you waiting for?

We did not go into any major in-depth review to come up with the above scenarios. We really just picked the low-lying fruit we had identified as key performance areas and made some serious decisions for the overall long-term viability of the club. The changes have added up to a projected overall financial improvement of $166,400 in the first year. And I’m confident it will be more than that, since happier members seem to be happier to spend more!

Firstly start tracking your financials in as much detail as possible and secondly, understand which Key Performance Indicators are going to give you the biggest return with the least amount of effort. And then drive these areas forward as much as you can. Let us know how you go.