Case_In_Point_7th_Edition_Page001_183_2

+ Batter Up!
Case 14: You’re a baseball fan and the owner of a private batting club in lower Manhattan
that has six multi-use batting tunnels or cages. One tunnel also has an auto-feed Iron Mike
Pitching Machine®. Members can reserve “cage time” each week. Your director of sales
comes to you and wants to know what the new member target is — how many new members
she needs to sign up. You know that last year the sales team signed on 200 new members.
The company’s revenues grew by 10%, and your (net) membership was roughly 10%, from
1,000 members to 1,100. If you wanted to meet your new target growth rate of about 15%, how
many new members would you need to recruit? Is this number feasible?
Okay, we need to figure out how many new members we need to sign up in order to reach our
target of 15%. Are there any other objectives of which I should be aware?
– No.
Okay. A 15% increase from 1,100 is 1,100 x 1.15 equals 1,265. You said that last year we signed
up 200 new members, but the membership only went from 1,000 to 1,100. That means we lost
about 100 members, or about 10% of our membership. I’ll assume that every year we lose 10%
of our membership base. That means we are going to lose 110 members this year (1100 x .10).
If that’s true, we are starting at 1,100 minus 110, which equals 990 members, and we need to
reach 1,265. We calculate 1,265 minus 990, which equals 275 new members. That’s about a 20,
no — 28% increase. Is it feasible? It’s double what we did last year. I’d have to explore our
marketing plan: what we’ve done in the past and what we’ve got planned in the future. Tell me
—
– I’d like you to focus on something else. What would you estimate our revenues are a year? Use
the 1,265 member number.
What are the fees and the pricing structure?
– Members pay $1,000 a year membership fee. Non-members pay $50 for a half an hour of batting
cage time and $100 for an hour.
Do we know the percentage breakdown between half-hour renters compared to those who
rent for the full hour?
– Does it matter?
No, I guess not. Not if the hourly fee is the same, whether you rent by the hour or half-hour. Let
me ask, what are your hours of operation?
– Eighteen hours a day, seven days a week.