Ed Shanaphy is Director of Tennis at Sippican Tennis Club in Marion, MA and a USPTA teaching professional who constantly realizes that his marketing is better than his backhand. He is President of SBW Associates, a leading consulting service in the country club industry.
League Play Doesn’t Always Add To Lifetime Member Value
by Ed Shanaphy
How Users Can Be Abusers and Team Players May Lower the Value of Your Membership and Club
From a management viewpoint, clubs are businesses. In these uncertain times, this is an even more crucial viewpoint. Clubs need to show positive cash flow, year-in, year-out. Each event should show a positive cash flow.
Pricing, supply and demand, and life-time value of customers/members all enter into the equation. Several market-based rules apply. One is: You can always lower a price; you can’t easily raise one. Associated with this is one adage usually held in even higher regard by some marketers: A customer garnered through a low-priced offer will always have a lower life-time value.
This adage alone recommends keeping initiations and dues at the higher limit that demand allows. You may lose a few member prospects due to higher joining costs along the way, but members that do join are almost always better “customers” of the club with a higher life-time value across a longer membership.
Customer life-time value is the profit margin a company expects to earn over the entirety of their business relationship with the average customer. Let’s change the wording: Members’ lifetime- value is the profit margin a club expects to earn over the entirety of membership with the club. Let’s break this down a little.
To calculate on a large scale, an average member’s value to the club can be estimated for each newly acquired member taking into account the acquisition costs (marketing and operating expenses) and the cost of the services provided (professional fees, balls, training aids, etc). This gives us an average value for each member. This average fluctuates on the variables of how often a member purchases, the value of those purchases and how long that member retains membership. Or simply as a mathematical equation, to look at each member individually:
Member Lifetime-Value = Average Value of Sale × Number of Transactions × Retention Time Period × Profit Margin
Does League Play Add to Your Facility’s Bottom Line?
We all know the delicate balancing act that Directors of Tennis face when it comes to teams and league play. Interclub teams, USTA team offerings and other organized play are rife with politics. If allowed, teams and leagues can dominate a director’s and his staff’s time.
Leagues do serve a purpose. They create competitive and regular play at little or no cost to players. And here lies the dilemma. With play organized at little or no cost, how can a club and director keep a perceived and real value to the club and the program? Here a delicate balance must be struck: free and low-cost play versus the perceived membership value (intangible) and real life-time value of membership (tangible).
A question always asked is whether to charge for team practices to raise the value and spending of team members. Should the charge be weekly by attendee, where some team members may show up, or should each member be charged in advance, leveling the playing field? Another option is this: those who show up for practice get first dibs on that week’s match.
All three variations have benefits but all three also have issues. In terms of revenues and life-time values, the upfront charge (maybe including a fee for a uniform and match balls as well) can really add to life-time value. If team practices are mandatory and paid for in full, the average life-time value of a member goes up. If not, more often than not, the average life-time value of a member goes down, significantly.
Over the years there have been two methods of dealing with such league play. The avenues taken vary between clubs and are dependent on a number of factors. Some of these factors include the level of control (aka micro management) a director desires over his or her program. Another factor is how the club operates on a revenue basis in relation to the ideals and ethos of the club. These two factors usually dictate a hands-on or a hands-off approach to teams and leagues, and the politics they create. They also play a large role in the perceived and real value of membership.
Leagues or Bust? Well, No. Look at Life-Time Value
Number of transactions and average value of sale is what always sticks in my mind as I watch a 9.0 mixed doubles league team take up 3 courts at peak time under the lights on a Thursday night. Teams take courts. courts that could be creating revenue. Teams also gobble up the time and attention of staff, from front desk up through to the director. These are costs, and yet, more often than not, revenues from teams do not cover the operating costs of the offer. Your cost of goods is higher than your retained prices.
If one takes into account membership initiation fees and membership dues, perhaps a slightly prettier picture is painted. However, those fixed revenue streams should really be saved for capital expenditures and facility improvements.
Often, a ladies’ or men’s team, if unhappy at a facility, will threaten their memberships collectively. Club managers and directors get wrapped up in the “heat of the moment” and think of massive losses if a team walks away. In reality, more often than not, these teams are not adding to members’ lifetime-values. Statistical data show that team members rarely take private lessons or jump in a clinic. but rely on inexpensive team practices for their instruction. Aside from uniforms, usually purchased after negotiating a discount for the team members, there are few purchases in general from team members. Team members travel as a pack and save money as a pack.
Another cost factor is an intangible. Every time a club team takes to the courts, half the players are non-members. Clubs are so particular about guest fees and how often guests may play per month or annually, but here, every weeknight or 10am on weekdays in Palm Beach County, most club courts are filled with 50 per cent non-members who are playing for free. Do the leagues pay guest fees? No. Maybe that is a bridge too far. Leagues do serve to provide competitive play. But the intangible, and often heard, perception is always there: who are all these non-members at peak times. creating another balancing act for director and manager? Even more importantly, league play preempts member use at peak times, creating another balancing act for director and manager. There is a cost to the club or facility that cannot be measured but can be very high in member morale, non-usage and lost revenues and perception.
Teams and Covid-19 Are Opportunities
League play is an opportunity for profitability and adding life-time value, but one that has to be created correctly really from the outset with new ownership or a new director. And when that opportunity is taken, management and staff have to be on the same wavelength. As we resume play and leagues come back from the Pandemic, that opportunity appears once again.
Once a team is allowed to operate on a low-cost basis, it will be difficult to raise that revenue stream. However, a change in director, management, ownership, or an elongated pause from play created by a pandemic allows for a resumption of league play under new guidelines. As league play commences, create a perception of value by charging adequate prices for all team practices, offer a warm-up, and charge for uniforms and balls in full. If the team bucks and objects, well that is unfortunate. That team might leave and find a new club to call home, which often happens. But on the bright side, your membership life-time value just went up.
Ed Shanaphy is President of BeyondTheBaselines.com, a subsidiary of SBW Associates, Inc. He is a graduate of Duke University and The London School of Economics.