While many of the interviews resulted in identification of partnerships that included multiple agencies, in most instances, it was evident that a primary partner existed. Primary partners and partnership classification are detailed below.
STUDY FINDINGS: PARTNERSHIP DEVELOPMENT
Interestingly, as shown below, the study revealed that conversations about partnering were initiated as frequently by the municipality as the YMCA. The term “primary driver” refers to both the people and the process that served as the tipping point for the partnership development process.
SETTING THE STAGE FOR SUCCESS: DEFINING THE VALUE PROPOSITION
Overwhelmingly, study participants emphasized the importance of articulating the value their YMCA brought to the overall collaborative effort. The act of articulating value to potential partners is called the “value proposition.” This is the tool used to validate why a potential partner should collaborate with others to create a community benefit. It demonstrates that working together adds more value, versus attempting to meet a community need independently.
While this may sound simplistic and obvious, it is truly the foundational starting point that galvanizes a group to work collectively. Successful collaborations require each of the partners to bring something of value to the table. Everyone around the table must universally recognize the value of each partner and appreciate their role (London, 1995). But it is more than that. Each person must believe that other table partners have the “greater good” first and foremost in their motivational hierarchy. “Greater good” trumps individual partner value. This sense of “greater good” is the glue that holds the group together throughout the complexities of the partnership development process and allows the community value to prevail.
MOTIVATING FACTORS FOR PARTNERING
Collaborative efforts often start as a result of the internal identification of unmet needs. From the YMCA’s perspective, unmet needs are typically identified through the strategic planning process. Through their strategic planning process, YMCA leaders identify gaps in service, unmet needs, lack of financial capacity, etc. with regard to mission service delivery. As a result, some YMCAs look outward for solutions. When asked about the primary driver for pursuing partnerships, the study participants categorized them as noted below.
MOVING FROM INTERNAL MOTIVATION TO VALUE PROPOSITION
Ironically, many of the study participants described the existence of a similar dynamic happening almost simultaneously with their municipal partner. The term “stars aligning” or “perfect storm” were common phrases used to describe this phenomenon. In instances when a YMCA and a municipality are wrestling with how to address unmet community needs, what inspires them to collaborate? At this point in the process, it is highly likely that neither of these groups is aware that their internal need is parallel to an unmet need of another community agency. Study participants referred to the eventual recognition process as “mission alignment” and referenced it as a fundamental building block of preliminary discussions.
Each partner must be able to present value to the potential partners in a way that is universally understood. When properly articulated, a viable value proposition will not be self-serving or motivated by individual gain.
Recognition of an unmet need does not represent a value proposition for either partner. In order for an identified need to qualify as a “value proposition,” each partner must be able to articulate how their organization can contribute to a collaborative solution. Each partner must be able to present value to the potential partners in a way that is universally understood. When properly articulated, a viable value proposition will not be self-serving or motivated by individual gain.
Furthermore, the value proposition must be delivered using a method that is easily understood by paid professionals, as well as lay leaders and elected officials. Tables 2-6 illustrate an objective way to present value to a potential municipal partner.
VALUE PROPOSITION OVERVIEW
When considering the cost of operating a recreation facility, there are universal costs that exist, regardless of ownership and operations. From a YMCA’s perspective, the cost of constructing, equipping, operating and maintaining a facility is not much different than a municipal recreation facility of similar size. The real difference is in the YMCA’s ability to recapture those costs associated with capital debt, equipment, annual operations and long-term maintenance through our expertise in fundraising and service delivery. Municipalities are often placed in the difficult position of subsidizing recreational amenities due to taxpayer intolerance.
This model, which does not rely on 100% recaptured costs, can eventually force the municipality to reduce recreational services in order to meet the required core service needs (emergency services, water, sewer, etc.).
The intent to improve quality of life does not end with the capital investment for a recreation facility. This capital investment is often eclipsed by the ongoing cost of an unsustainable operating model. The YMCA’s value proposition lies in its ability to paint a picture that illustrates its ability to successfully share the financial risk of providing this community benefit, while meeting the community’s expectation for quality of life as it relates to recreation.
The value proposition can be effectively articulated by presenting a logical illustration which outlines the costs of constructing, operating and maintaining a facility, regardless of ownership. The approach should establish a common understanding of how costs and risk can be shared if a partnership exists. These costs/risks should be detailed over the term of facility use. For the purpose of this illustration, a term of 20 years is utilized. While cost of construction and municipal recapture rates may vary, typically the municipality will be aware of local construction costs and the recapture rates of not only their city, but also typical municipal standards.
The illustration serves as a baseline example to establish how the municipality can achieve monetary value and shift risk. Table 2 shows step one of this process, which is to define typical costs for construction, operations, equipment and capital maintenance costs over the life of a facility, regardless of ownership. This example assumes $10 million capital construction, $2 million annual operating budget ($40 million over term with a 50% recapture rate, which amounts to a $20 million dollar unrecovered operating subsidy), initial $1 million FF&E investment, followed by an additional $4 million in equipment replacement and upgrade ($5 million over term), and $80,000 average annual capital maintenance and repair and replacement costs ($1.6 million over term). The combination of all of the anticipated costs in this example total $36.6 million over the term. This lays the groundwork for the YMCA’s value proposition. The next step is to determine how the YMCA can help.
HOW TO DEFINE THE VALUE PROPOSITION, STEP ONE
DETERMINE YOUR MEMBERSHIP POTENTIAL
Traditionally, membership represents 60% of a stabilized YMCA revenue mix. One of the benefits that the YMCA brings to a partnership is its expertise and success in establishing and maintaining a strong membership base.
In defining your value proposition, the YMCA should focus first on its ability to generate membership revenue. Municipalities typically utilize the terms “annual user” and “day user” rather than the YMCA’s standard terminology “annual membership” and “daily member”. While these terms are obviously synonymous to some, “membership” may conjure a sense of privatization and alarm municipal leadership. Adequate time should be spent on ensuring that regardless of terminology, accessibility for all is not in jeopardy. The YMCA’s operating model relies on a stable membership base, which the YMCA culture fundamentally understands.
However, our value-add approach to member acquisition and retention is a concept that most municipalities do not understand or utilize. The use of reliable data is critical to convey the YMCA’s ability to capture our traditional market share, which we require to remain sustainable. To benchmark how YMCAs can perform in various communities, the YMCA of the USA utilized SEER Analytics to establish market penetration data related to community size. Table 3 provides an excerpt of this data. In order to establish a fundamental baseline, a YMCA can use the SEER data as a reliable starting point prior to investing in expensive site-specific market research. market penetration data related to community size. Table 3 provides an excerpt of this data. In order to establish a fundamental baseline, a YMCA can use the SEER data as a reliable starting point prior to investing in expensive site-specific market research.
Table 3 delineates community size horizontally by category. Market penetration is presented vertically and segmented by comparison (25th percentile, median and 75th percentile). For a readily accepted, conservative example, determine the corresponding size of your community and utilize the median. Once you have identified this information and are ready to present this information to potential partners, fill in the appropriate blanks and utilize a statement such as, in a community like , the average YMCA can expect to achieve a % penetration rate. This is the first step in the formula of determining how a YMCA can utilize membership revenue to help recapture facility operating and program delivery costs.
The next step in the formula is to use demographic and industry standard information in order to project potential annual membership revenue. Table 4 illustrates this step. Demographic information can be secured from your recent census, your chamber of commerce or local municipality. Insert community-specific information into teh formula accordingly. The national industry standard for recreational allowance represents discretionary funds that a typical household will spend annually on a facility membership such as a YMCA. This figure is a reliable data point for any community.
As an example, Table 4 reflects a community population of 125,000 with an average household size of 3, which provides you with the number of households (41,666) through simple division. Utilizing the SEER data from Table 3, the community size falls between the categories of “town” and “suburban.” As stated previously, it is recommended to apply the median penetration rates, which would be 4.1% (a blend of 4.8% and 3.4%, respectively). The number of households (41,666) multiplied by the projected market penetration rate (4.1%) results in the number of membership units that a typical YMCA should achieve at maturity (1,708). Please note that membership ramp-up is not considered in this formula. Due to its unique, site-specific nature, membership growth is a consideration that should be addressed during the formalized market research process.
The median income in this illustration is $60,000. Multiplying the median income by the national industry standard for recreational allowance (1.3%) provides an annual estimation of a potential family membership rate ($780). Dividing this annual rate by 12 will give you a starting point to determine a monthly membership rate ($65). By the same token, multiplying the membership units (1,708) by the annual family membership rate ($780) will provide an overall membership revenue figure ($1,332,240). It is understood that membership rates have not been established prior to this calculation. Indeed, a true mixed rate, established through a determination of membership categories and price point study, is not available at this point in the process.Keep in mind that this formula is a scientific approach but not an exact science. It is meant to serve as a credible basis for your value proposition which will ideally be confirmed through site-specific market research.
HOW TO DEFINE THE VALUE PROPOSITION, STEP TWO
As stated previously, typically membership represents 60% of a stabilized YMCA revenue mix.
In this example the steps addressed in Tables 3 and 4 have provided baseline membership revenue of $1,332,240. The next step is to define the remaining 40% of total potential revenue, which includes revenue generated from any activity that is not included in membership fees. Similar to estimating the membership revenue, this figure is a calculation of the whole.
The first step is to determine that the estimated membership revenue of $1,332,240 (see Table 4) represents 60% of $2,220,400 ($1,332,240 divided by .60). This means that the remaining 40% of the $2,220,400 is equal to $888,160 ($2,220,400 x 40%). When the two totals are combined, the total revenue potential is $2,220,400. This represents national YMCA standard operating mix and median community membership penetration rates. Note: Ramp up is not considered in this formula.
HOW TO DEFINE THE VALUE PROPOSITION, STEP THREE
DETERMINE YOUR POTENTIAL OPERATING EXPENSES
In order to provide potential partners with an understanding of the anticipated operating costs, you can utilize the standard operating cost ratios provided by the YMCA of the USA. It is important to keep in mind that these ratios are an average and will vary from market-to-market and do not account for the unique nature of expenses related to the ramp-up phase. When you apply the national operating expense ratios to your total revenue, it is important to verify the actual dollar amounts per category against similar operating costs
of a comparable facility and staffing structure.
While the YMCA of the USA average staffing allowance is 61%, your local staffing costs may vary slightly and you can adjust accordingly if significant. On another note, if the revenue potential is low, due to small population or low socioeconomic conditions, the average cost ratios provided by YMCA of the USA will be insufficient to fund the operation. In this instance, you will need to adjust the ratios and be prepared to explain how the overall operating costs exceed the revenue potential. However, this is not a reason to forego partnering. Most likely, the YMCA’s operating costs will still be significantly less than that of a municipality.
You will notice in Table 5 that the direct operating costs of this YMCA reflect 91% ($2,020,564) of the $2,220,400 total revenue. The remaining 9% is available reserves, debt service, contingency, capital maintenance or other shared partner expenses. In this example, 5% ($111,020) has been set aside for YMCA reserves/contingency, which leaves 4% ($88,816) for shared partner expenses.
Furthermore, the value proposition is strengthened by the YMCA partner’s ability to demonstrate that direct expenses can be consistently managed through operating expertise. Additional value may be brought to the table by dedicating a portion of any surplus to shared partner expenses, once all other operating costs are met.
HOW TO DEFINE THE VALUE PROPOSITION, STEP FOUR
DETERMINE YOUR FUNDRAISING CAPACITY
Obviously, fundraising can play a pivotal part in the YMCA’s value proposition. Determining fundraising potential is very community-specific.
If fundraising feasibility studies have been conducted, then specifics related to the actual fundraising potential may be utilized. If fundraising feasibility has not been established, then the fundraising potential will be nebulous and may not be a credible component to your value proposition.
In Table 6, the example provides fundraising potential established at $3.5 million. In this case, unless restricted, the YMCA may choose to offer the use of these funds to offset the cost of capital, initial equipment and furnishings, or ongoing equipment replacement. Depending on the municipality’s capacity to fund capital costs versus equipment or vice versa, use of fundraised dollars will vary.
DEMONSTRATING THE VALUE PROPOSITION
Once all of the above steps have been completed, you will be able to illustrate the potential value of partnering. Going back to the initial example, which defined typical costs for construction, operations, equipment and capital maintenance costs over the life of a facility, we can apply the value proposition details to each cost center.
The original example assumed $10 million capital construction, $2 million annual operating budget ($40 million over term with a 50% recapture rate, which amounts to a $20 million dollar unrecovered operating subsidy), initial $1 million FF&E investment followed by an additional $4 million in equipment replacement and upgrade ($5 million over term) and $80,000 average capital maintenance repair and replacement costs ($1.6 million over term). The combination of all anticipated costs in this example total $36.6 million over the term. In this instance, the value proposition does not affect the total capital construction costs for the facility. The cost remains static at $10 million. With regard to the $2 million annual operating budget ($40 million over term with a 50% recapture rate, which amounts to a $20 million dollar unrecovered operating subsidy), the work completed in Tables 2-6 establishes that the YMCA will be able to underwrite 100% of the costs associated with daily operations at maturity (the formula does not consider loss due to ramp up). Therefore, this reduces the municipality potential financial burden by $20 million over the term.
The YMCA’s fundraising feasibility study confirmed the potential for generating $3.5 million dollars. Timing for pledge fulfillment provides an excellent approach for the YMCA to fund initial equipment and furnishings purchases, as well as future equipment replacement, reducing the overall cost to $1.5 million. By designating the 4% ($88,816) remaining balance of operating surplus to shared partner expenses, (noted as capital maintenance and replacement costs), the YMCA is further able to contribute an additional $1.6 million. The total YMCA value proposition is $25.1 million over the term of the partnership. In this example, the municipality’s original cost expectation of $36.6 million is now reduced to $11.5 million, which is a 2-to-1 community partner match by partnering with the YMCA. The value proposition is illustrated in Table 7.
Note: Formal market research will need to be completed and findings may vary.
VALUE PROPOSITION TAKEAWAYS
While the obvious measurement for the value proposition is monetary, there are a number of other benefits that are related to this process. An initial sense of credibility can easily be established through the use of data provided by the YMCA of the USA. In addition, the use of third-party studies or data (fundraising feasibility, etc.) can augment the validity of estimated financial resource potential unavailable to government agencies.
Furthermore, the YMCA’s nationally-recognized service delivery model and commitment to providing financial aid for individuals who would otherwise be unable to afford recreational services, due to financial hardship, is a significant value-add to the value proposition. Possibly, the most beneficial aspect of this approach lies in the fact that it allows for very little financial commitment prior to confirming a partner’s interest.