A friend reminded me that I am a perfectionist in an imperfect world.
What brought the observation forward was that I was expressing frustration with a golf course that is managed by a well-known firm. After being closed for four months, two weeks ago, the waitress refused to take orders for dinner at 6:20 p.m. because the kitchen closed at 7:00 p.m., they had only two people in the kitchen and had 20 orders in the cue. They should have been adequately staffed. To me, the solution is simple – hire additional staff with a higher wage and charge the patrons more.
The frustration with this course runs deep. The left door to the pro shop has been broken for six months and has yet to be repaired. You can only enter via the right door. The “two-sided” sign used to block golf carts driving to the parking lot has a holder for the clock on one side. The sign was displayed without the clock. Five percent of the range balls are well beyond their expected life and fly left and right on a single shot. The irrigation drainage pipes are visible in the practice sand bunker. The front of the clubhouse looks abandoned with no flowers and merely flagstone embedded with weeds and pine needles several inches deep.
The complacency with management creates a culture that extends to their patrons.
On April 26, 2022, a smug 20-something hit 20 – 75-yard wedges from the driving range across the cart path towards the short-game green while three golfers were chipping a mere few yards from the putting surface. He was flying balls over the head of one of the practicing golfers. When asked to stop by two golfers, his pert response was, “I need to practice that shot and continued hitting balls.” When the situation got tense and the thought of calling the police entered the mind of one golfer, the Pro Shop was called. The course’s response was, “He shouldn’t do that.” They did not suspend or refund his annual practice pass.
The course resides in one of the wealthiest counties in the US. In the prime season, they charge $139 per round. They are resting on their laurels as demand exceeds supply. To me, there is no excuse.
The friend chided me, “Why are you so upset? You don’t expect that this golf course will change its management practices if you bring it to their attention when sometimes you can’t even get your paying clients to implement the intuitively obvious?”
I had to chuckle.
Why is it I see the glass half empty – not half full? I always look at how they could be improved and am not satisfied with the status quo.
Do I blame it on being a Virgo? Or is my personality flawed from merely the result of a professional career spent as a Captain in the US Air Force Audit Agency or perhaps the five years I spent as a CPA with Peat Marwick Mitchell (think KPMG)?
My friend finally suggested that I should focus on the positive and highlight those who have listened and benefitted, hoping those that may read this blog will also prosper.
In January, a famed resort was setting rates for 2022. The high season rate is $125 plus cart. Their season pass holders pay an average of $22 per round and dominate the early tee times – seven days per week. The annual loss was $250,000. When reservations were first made available this season, pass holders started booking several weeks ago and thought the course was “teasing” about the $20 reservation fee. When the golfers were advised, they were provided the opportunity to pay $20 per player or wait until seven days in advance and have their existing reservations canceled. Rather than accepting tee time reservations seven days in advance, our suggestion was to accept them for the entire year, charging patrons a $20 per person reservation fee. Though the course recently opened, they project $30,000 in incremental revenue. Season passes were also increased.
In February, our client was lamenting that their course, located in the center of a major metroplex, was too remote and that they needed to discount. With a $68 green fee inclusive of the cart on a practically un-walkable course, their revenue per round was $30.12. Season pass holders were paying an average of $27.20. The course is really good. We advised them to “sunset” their season passes, protect the integrity of their rack rate, and discontinue various advertising programs netting less than $20 per round. As a result, in the first month, revenue per round increased to $42.15, and revenue was $32,000 higher on just slightly more rounds.
In March, we undertook a review where 10,321 Rounds representing 25.11% of total play generated $6.36 per round. The cost to produce that round of golf is $24.72. Because the golf course had used a 15-minute tee time interval for the past two years, golfers willing to pay the rack rate had difficulty accessing available tee times. Compounding the matter, the course, which charges $55 per round inclusive of the cart, has a rare “price monopoly” on the market. All golf courses within 30 miles, in an area lacking major interstates, charge $20 higher per round on only marginally better courses, mainly from conditioning. The tee time interval was narrowed on April 1, a plethora of season pass programs are being reduced, and prices increased. The course has fabulous potential.
What are the lessons?
- Tee time reservations should be made available 365 days in advance with a reservation fee per played charged representing 10% of the associated tee time booked. Golf may be the only entertainment activity in which reservations are accepted with such a narrow booking window. Football, baseball, basketball, hockey, theatre, movies, and concerts allow you to purchase on non-refundable basis access to that event. Even airlines will enable you to book 335 days in advance. Why not golf?
- Season passes should be priced appropriately based on the prime time rate discounted by 30% multiplied by 25% of the playable days.
- Ensure tee time intervals are properly set that are commensurate with the experience intended.
Those years to develop, the analysis we undertake is very simple to apply. Here are the 15 rules of thumb that we undertake to commence a municipal or daily feel financial review.
|#||Benchmarks that Predict the Financial Health of a Golf Course|
|1||Gross Revenue: Multiply the prime green fee and cart rate times 60%. That result is multiplied by the number of starts. The result should equal your revenue from green fees and carts. Note season pass sales are added to the total.|
|2||Yield Per Round: Calculate your revenue per round purchased – total green fee revenue divided by starts compared to prime rack rate. If it is below 60%, you are probably discounting too much.|
|3||Utilization as Percent of Capacity: Divide rounds played by capacity as measured by Weather Trends International. Why the pre-pandemic utilization at golf course was historically 52%, in 2021 course utilization was 62%.|
|4||Green Fee Indicator 1: Multiply the maintenance budget times .0001. The result should equal the green fee.|
|5||Green Fee Indicator 2: Multiply the median household income within 10 miles of the golf course by .00084. The result should equal the green fee.|
|6||Season Pass Fair Market Value: To determine the appropriate rate for season passes, multiply the number of playable days by 30%. That result is multiplied by the rack rate. That result is multiplied by 70% of the rack rate representing a 30% discount. We witness in most cases the season pass prices are too low.|
|7||Cost of Goods Sold – Merchandise: 70%|
|8||Cost of Goods Sold – Food and Beverage: 40%|
|9||Total Salary Expense: Total salaries should be 40% of the total revenue for a municipal/daily fee golf course < $100. For a private club, salary expenses can run 47% – 52% based on a higher level of service and membership dues.|
|10||Fringe Benefits: Divide the total fringe benefits by payroll expense. If the fringe benefits percentage exceeds 40%, privatization is an option. The goal is 25%|
|11||Advertising and Marketing: 2% of gross revenue.|
|12||Maintenance Expense: Total maintenance salaries plus all related expenses for the course, i.e., electricity, equipment supplies, fertilizer, gas, water, etc. of revenue should equal 45% of gross revenue.|
|13||Chemicals, Fertilizers and Pesticides (Grounds Budget): Target is $60,000.|
|14||Water Expense: Multiple the number of gallons of water utilized by $1.20 per thousand gallons ($ 387-acre foot). If water expense exceeds $100,000, the golf course will be financially challenged.|
|15||EBITDA: Earnings before interest, taxes, depreciation, and interest should approximate 20% of gross revenue.|
Through March 2022, rounds across the United States are down 7.5 percent, as reported by Golf Datatech. Fortunately, we consistently hear that revenue is up based on restructuring rates for the 2022 golf season based on demand experienced during the Pandemic.
How do your benchmarks compare?
If you are seeking an independent analysis of the financial potential of your golf course, within three weeks, we can creatively apply our tested 7-step process to create smart profitability insights to validate, confirm and guide your golf course. As the expression goes, “A guest sees more in an hour than a host sees in a year.”
Merely click here to start on the path to increased profits.