Heuristics refers to experience-based techniques for problem-solving, learning, and discovery that find a solution which is not guaranteed to be optimal, but good enough for a given set of goals. Where the exhaustive search is impractical, heuristic methods are used to speed up the process of finding a satisfactory solution via mental shortcuts to ease the cognitive load of making a decision.
The business of golf has many heuristic indicators. For example, count the number of Starbucks stores within 3-mile radius of a municipal or daily fee golf course and it will provide a good indication if the golf course has the potential to be successful. These techniques can quickly guide the golf course owner in determining are they optimizing the financial potential of their golf courses.
Here are the ten rules of thumb for municipal and daily fee golf courses.
- Gross Revenue: Multiple the prime rate rack times 60%. That result is multiplied by the number of starts. The result should equal your revenue from green fees.
- 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.
- Green Fee Indicator 1: Multiply the maintenance budget times .0001, the result should equal the green fee.
- 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.
- Season Pass Fair Market Value: To determine the appropriate rate for season passes, multiply the number of playable days by 25%. That result is multiplied by the rack rate. That result is multiple times 1 – 30%.
- Salary Expense: Total salaries should be 50% of the total revenue.
- Fringe Benefits: Divide the total fringe benefits by payroll expense. If fringe benefits exceed 40%, your chances for financial success is challenged.
- Maintenance Expense: Total maintenance salaries plus all related expenses for the course, i.e., electricity, equipment supplies, fertilizer, gas, water, etc. should approximate 45% of gross revenue.
- Water Expense: Multiple the number of gallons of water utilized by $1.20 per thousand gallons ($387 acre foot). If your water expense exceeds $80,000, your chances for financial success is challenged.
- EBITDA: Earnings before interest, taxes, depreciation and interest should exceed 20% of gross revenue.
What benchmarks do you use? Comment below.
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Peter Aiello
Jim:
Good simple “rule of thumb” type of analysis for ensuring you are demonstrating positive financial results that can be used daily. Not sure that the last sentence in statement 5 is clear. Are you saying that result is multiple plays supported by a 30% discovery by from rack rate?
Always interesting material for your readers.
Fairways and greens
Peter