How to Determine the Perfect Pricing Structure for Your Club’s Initiation and Membership Fees!

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Pricing is one area of marketing that seems to really scare most private clubs! Few of the hundreds of clubs that I have consulted with have any real rationale as to why their initiation fees and dues are what they are, other than the usual comments of …

“That’s all the market will bear” (almost always unsustained by any real marketing proof, i.e. TESTING)

or

“Our prices are more or less whatever EVERYONE else in town charges.”

Neither of these answers are a good enough answer when searching for the perfect price of your membership offerings, perfect being defined as the optimal price to both attract members and at the same time provide enough income to easily sustain your club at a reasonable to high level of conditioning and service. Although, both what the market really will bear and what others are charging must be considered in the process neither should be the driving factor in your decision without real testing to back up your assumptions.

Add to those common answers, the frequent possibility that prices were set by a board or manager long since departed, whose thought process no one has since thought to question and you are unlikely to have your prices set at an optimal level.

Where Does Your Club Fit In?

In every market, the club at the lowest end of the market usually does quite well, so does the club at the high end of the market. The main reason this happens is that both have a clearly defined position in the minds of prospective members. Those clubs that seek the middle ground or take a position slightly above or below those two are almost always the ones with the toughest problem. They are neither the cheapest nor the best. This still leaves plenty of other options open but whatever position you choose, it must be clear to prospective members and the price must reflect the positioning.

If your club claims to be the best value in town, then that value must be clear, in both benefits and pricing!

The Million Dollar Question No One Wants to Ask

The first and foremost factor in setting pricing is to ask this simple question. How much do you need to run your operation, including covering all operational expenses, debt amortization, and an appropriate reserve for capital improvements/replacements with a small surplus if you are a member-owned club or at a reasonable profit, if you’re a for profit club?

How Many Members Do You Want?

The next question to answer in discovering the perfect pricing for your club is to answer the question, “How many members do you want?” Many clubs have limits, often set years ago, which although on the surface seemed to make sense then, may not be right for the club today.

One member tells of leaving his club in Orange County, California when membership reached 900 for 36 holes and rounds started taking 5.45 on Fridays! Yet, others at clubs with just as many members report getting out and around is never a problem. One club we just worked with in Florida has a cap of 795 members which at a seasonal course with 45 holes seems a ridiculously small number, except for two factors.

A) It’s a young retirement community (late fifties) meaning everyone plays five to six times a week.

B) Almost every wife is also a full time golfer, thus doubling the amount of play.

In the season, even with this few members because of the actually demographics of the membership tee times are already scarce and the club only has 500 members.

Typically high end private clubs have 250-350 members while mid range clubs have 350-500, per eighteen holes. What is ideal for your club depends a great deal on how the course handles play, what your players demographic are and how your membership categories are structured especially with regards to social, fitness or restricted access memberships.

You must decide how many members you want and at what price?

500 members at $300 a month is $1,500,000 in dues
250 members at $600 a month is $1,500,000 in dues
125 members at $1200 a month is $1,500,000 in dues

It should be noted that while most clubs often lower dues to attract members, it’s very often easier to raise them, at least when it comes to reaching income goals.

Before You Raise the Dues

Now before we get to the sensitive subject of raising dues, let’s also realize that income can be raised in every other nondues category first, with a little effort.

Add five dollars on guest fees here, $1 on cart fees there. A more aggressive attempt to book Monday outing business alone can add $100,000 to your bottom line.  While a simple in-house effort to remind members monthly, that you’d love to host their birthdays and special occasions can easily increase income by 10% or more with very little effort. (None of the clubs I have ever belonged to has EVER sent my wife or me anything suggesting we hold a surprise party at the club a few weeks ahead of our birthdays and I can assure you our birthdates are on file.)

Are Your Existing Members Paying Enough?

This is a question few clubs want to ask, but it’s a question that needs to be asked. At the end of the day, revenue must be more than operating expenses and a certain level of standards must be maintained.

Three years ago after years of artificially low dues for many years, my club decided to catch up all at once by raising the dues 100% taking them from a low $3,000 per year to the mid $6,000 plus trail fee. The move naturally caused outrage among the members. All types of clandestine meetings were held, petitions where sent out, e-mails flew around and the battle lines were drawn but you know what? When it actually came down to it no one quit. No one that is who wasn’t already on their way out the door or moving to another area. Of the forty to fifty people with whom I play; NO ONE quit.

The fact of the matter was that the new fees albeit twice what we had paid the year before were still smack in the middle of the ball park for a higher end course in our particular market.

Secondly, everyone could easily afford the increase even if they didn’t like it. To most it was less than a half decent day’s gain in their stock portfolio and so despite the words, despite the threats, they simply paid it and went on as if nothing had ever happened.

Most people are simply not going to change a life style choice over a few hundred dollars a year, no matter what their income!

Softening the Dues Increase

One thing you can do to ease the problems in raising dues and raising money for short-term capital improvements is to announce a dues increase, but then allow your members to pay X amount of dues in advance at the old rate. This simple strategy will produce an influx of cash and reduce the pain of an increase. Just be sure to use the cash wisely!

A second way to soften dues increases is to compare the cost of membership to other clubs in the area pointing out your clear superiority in several categories. (Do not do what my club did and compare yourself to clubs 300 miles away to which you are in few ways superior too)

A third way to soften dues is to clearly spell out in the same letter, your ten point plan for improving the club along with the specific projects the increase in dues will fund. In short, sell them on the value; more about this later.

Pricing to Attract New Members

The key issue with setting any price is simply value. Specifically, it is the prospective member’s perception of the value your club offers him. Before settling on your pricing, stop and look at the world around you, it is a far better indicator of what people will pay for goods and services rather than simply a comparison to those clubs around you.

Think About This:

Most luxury car models like BMW, Mercedes and Lexus have sticker prices starting at $70,000 and that frequently go up over $100,000 and that’s for a product that won’t be in the member’s drive way four years from now and will be worth a tiny fraction of what they paid when it moves to another owner.

Most couples spend over $7,000 on a seven day cruise when all is said and done.

Two seats to an NFL team with just eight regular season home games are $3,000 and there are 66,000 people there! (These are just average club seats on the ten yard line!)

Golf memberships are actually an extraordinary value compared to most forms of sport and entertainment. The key is in how effective you are in communicating that value. To a large extent the price is immaterial especially if we are talking about a few thousand dollars up or down.

Your job of course, is to communicate that value to your members and prospects and I would not be above occasionally making comparisons like this in your club newsletter to reiterate the value of membership on an ongoing basis. Few clubs if any put any effort into constantly reselling their membership and it’s a huge mistake. This does not have to be “in your face” sales, but just subtle hints on the website, quotes from members about the great friendships they have developed at the club, etc.

All things being equal it makes VERY little difference at MOST clubs whether your monthly dues are $195 or $289, $330 or $395, $525 or $625. Whatever they are, it must be enough with a reasonable amount of members to run the place at the standards you have set. It’s that simple!

The real question is NOT THE PRICE because in reality the PRICE must be at LEAST what it MUST be to operate the club. If it is to be more than that, you should simply decide what that amount should be!

The real KEY is in HOW the membership offer is packaged, how the value is communicated and whether the initiation fee is priced right.

I will go into great detail of how any club can structure an irresistible membership offer in the next chapter, for now let’s focus on the initiation fee.

Initiation Fee or No Initiation Fee?

There is a growing trend among many clubs to reduce or even eliminate initiation fees in an attempt to attract more members, but the truth of the matter is it’s a faulty and desperate strategy.

We are in favor of initiation fees if for no other reason that the very fact you have them allows for some negotiation or wiggle room when needed. Meaning you can’t give away a $5,000 initiation to add value to the transaction if you are not charging one in the first place, now can you?

Typical Initiation Ranges

Here are some typical initiation fees and the normal categories they would fall into:

• Low end $1000-$4999
• High Low End $5000-$9999
• Mid end $10,0000 – 19,9999
• High mid end $20,000-$29,999
• Mid High End $30,000-$49,9999
• High End $50,000-$100,000
• Super High End over $100,000

As I am sure you are aware initiation fees vary tremendously from club to club and very often the “Best” as in oldest and most famous clubs do not have a particularly high initiation or dues.

How Should You Determine Your Initiation Fee?

All things being equal there are really only two ways to help you set your fees. The first based on club income goals the second based on social goals. Meaning you should base your initiation fee on either how much you want the club to make form it, or hold if it’s refundable or:

The fee should be based on the social economic profile of the people you are trying to attract to the club. This, of course, is nowhere near as good an indicator of membership compatibility as it used to be!

The key to how much you can charge is based on both the prestige your club has in the community and the value that it is perceived to deliver. There is very little difference to most affluent people between say $17,000 and $23,000, especially if it’s a product or service they want. What happens to the initiation fee should they leave or move for any reason is a key factor; for even affluent people do not want to waste their money!

What Happens to My Initiation Fee?

What happened to a member’s initiation fee tends to be of far greater concern than the actual amount of the fee!

Does the initiation fee:

• Simple go away i.e. is a fee used to operate the club
• Get returned in full upon the member leaving
• Get partially retuned
• Grow or shrink in value based on current membership
pricing or even the open market?
• Get refunded by only on a scale matched by incoming
new members
• Or some other combination of the above

How these questions are answered can have a far bigger impact on attracting new members than lowering or raising the fees themselves. Obviously, a full refund upon leaving is the most desirable response, with the whole fee disappearing, the least desirable. Some clubs even change initiation fees based on whether or not the fee is refundable. With a lower priced initiation fee being lost, while if they opt for a large fee it is refundable.

Other common practice is to have the membership fee refundable over a period of time so that people staying say ten years will get all of their money back while people staying five years might only be entitled to a 50% refund!

The more flexible your initiation fee return policy, the easier it will be to sell memberships, especially with the highly transient nature of today’s workforce; so choose your options with care!

Initiation Deposits

Initiation deposits might be considered in lieu of initiation fees as they provide a source of cash flow and are treated as a long-term liability versus income. With these a plan for repayment must be included as part of the membership agreement.

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