For months before a recession was officially pronounced in the United States, club operators noticed signals of a recession. Decreased revenue, increased attrition rates and slower prospect traffic leading to lower sales all pointed to a troubled economy.

In reaction, club operators focused on increasing revenue per member. Often, ancillary revenue categories, such as personal training, racquet-sport leagues and lessons, children's programming, massage, and food and beverage, had not been promoted effectively, so these non-dues categories offered room for growth and improvement. Recently, however, some push-back has occurred in these areas as the economy has caused people to curb their spending further.

Now, club operators must focus on the expense side of the equation. Industry data indicates that expenses have crept up in recent years as club owners have increased their revenue. Rather than strictly holding expenses to those of previous years, club management has allowed expense categories to rise to keep up with or exceed the percentage of revenue growth. Now is the perfect time to examine each expense item on a line-by-line basis. A dollar saved on the expense side will fall directly onto the bottom line.

It's a Plan

Cost-cutting starts with proper planning. Each year the owner and general manager should set overall guidelines for the club and each department (e.g. revenue increase of plus 5 percent and an increased net contribution of plus 8 percent over the previous year). Although management should know detailed information about the previous year's financials and performance, a fresh 2009 budget must be created from the ground up. This is often labeled as zero-based budgeting.

During the planning stage, the club owner should make clear that the department head (and ultimately, the general manager) will be responsible for the department's end result. Whether the department is a profit center or a cost center, this accountability should be tied to a reward system for reaching the year-end total net contribution.

Part of successful departmental budgeting or profit planning involves each department head forecasting each revenue and expense item by month with detailed, written back-up assumptions. These assumptions should hold up even if a new department head comes into that department midway through the year.

Obviously, results must be monitored monthly, so department heads can make mid-course corrections. Using a variance analysis report, department heads can study each line item, research why the actual result differed from the projected total, then explain the variance in writing. They can do this both for the specific month, as well as on a year-to-date basis. They can also project going forward the corrective actions needed to achieve the year-end net contribution total for that department.

Other forms and charts should be used to monitor data. Today, many sophisticated clubs create daily dashboards of key metrics, which means daily monitoring. Many club operators are even creating these for individual department heads so they will not be surprised by overlooked expenses at the end of the month.

The goal of the monitoring should be cost savings, which should allow for a month where expenses exceeded the budget because of factors that were unpredictable or outside of the department heads' control. In addition, a portion of the cost savings should be made available as incentives to the department heads at year's end.

To help decrease costs, club owners should consider a staff cost savings contest that would involve all staff (full-time and part-time) in every area. Each submitted idea that saves a projected $1,000 or more during the next 12 months would be rewarded. After all, non-management staff members are infamous for discovering areas for savings that are typically overlooked by department heads and general managers. The contest offers a participatory role for all staff in managing expenses, creates a culture of focus on the cost side, and eliminates the stigma that the club is "cheap" or is taking a "nickel and dime" attitude.

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© 2012 Penton Media Inc.