Strategies for FECs to Increase Revenues
I see way too many facilities going up or expanding these days without the owners/investors conducting a thorough feasibility study that looks at all of the crucial factors. These include measuring the available slice of the existing market, the earning and spending power of potential customers, the range of competition in the area and much, much more.
Anytime people skip this first critical step, their chances of success are about the same as rolling the dice in a crap game, no matter how smart they may be. Without a detailed study you’re simply fooling yourself. In my experience, most of the FECs that fail do so because they didn’t establish the proper revenue vs. expenses base of operation.
Many industry suppliers, particularly those that offer popular attractions, are often providing advice that operators think will serve as a substitute for conducting a full feasibility study. Even though the products these firms rep may be excellent attractions, the revenue projections provided are not the same as third party objective analysis. In fact, this type of advice is similar to the problems that led to the Financial Crisis of 2008 with rating agencies getting paid by Wall St. firms to rate those same firm’s mortgage bonds. When you have an interest in selling a product, almost any location becomes a viable one.
The profitability of operating a good, solid family entertainment center remains strong, but you have to pick the right location and level of investment and you have to devise a solid plan for growth. What never ceases to amaze me is how often I encounter people who have been in the industry for even 20 or more years, many of whom want to grow their business, and yet these industry veterans continue to make rookie mistakes over and over again. These veterans need to seek out objective data and third party advice because they don’t know what they don’t know. Fortunately, we’ve seen about a third of last year’s attendees for our Foundations University coming from the ranks of industry veterans. We also have had a dozen veteran street operators looking to better understand and reach greater game revenue potentials in the FEC market.
Through the years, I’ve met operators who have been running seemingly successful FECs for years and yet they do not even pay much attention to their game data. They don’t weekly track or manage their redemption games’ ticket or e-point payout percentages or merchandiser win percentages. Even the FECs that do track that information aren’t using it to improve their business. Any one of our AEM Team can often walk into an FEC and within just a few hours recommend action steps that result in game revenue increases of 15%-25% or more, just teaching the technician and manager how to properly track their game information, make the necessary game programming and price/play adjustments, and improve the game layout.
FEC operators also don’t pay much attention to the game mix. Even a rotation of one new game every three months would improve revenue because FECs have to provide their customers a reason to come back. Just paying attention to a well thought out list of operating procedures could benefit so many FECs.
When you drill down into who is patronizing locations, many FECs are being supported by a very low number of individual customers in a particular market. That’s why an accurate feasibility study is so crucial, so that you have a realistic grasp of your target audience and you can invest appropriately.
You also have to analyze the average individual and family out-of-home entertainment spending on an annual basis. This is all the more crucial today when you consider how much money is going to mobile providers and the newest electronic devices. Those new family budget items have definitely cut into the money that used to get spent on more traditional entertainment like ours
As an example, a hypothetical FEC that grosses $1.2 million in revenues would have 100,000 customers walk through its doors, spending an average of $12 per visit. The simple formula for this is: Gross Revenue = Per Capita Spending X Attendance. But when you factor in repeat visits, you’re really talking about only 30,000 unique visitors, many who come multiple times per year. So one of the most important growth strategies, beyond re-investing in your location, are to increase the visitation rate of your core group with a few proven strategies.
For the past ten years, my company has been focusing on trying to maximize our VIP loyalty programs by devising ways to encourage our small number of frequently visiting VIPs to recruit people like them who are also willing visit frequently. We’ve done that in part through incentives; a 10% discount for life and additional bonus credits when they bring in and register other new customers who, as is turns out, are most likely to be friends with similar consumption habits.
This is important because we have locations where 3% of the customer base are generating 20% of the total revenue! This is a great cushion to have and is the prime reason why our revenues did not slip at all during the past economic downturn. But what about the other 97% of the customer base? Obviously they are not interested in a VIP program but many can be encouraged to recruit their friends as new customers if the incentives were attractive. Every new location will generate a certain amount of traffic from people who will come once for the novelty factor or in response to a marketing effort. The goal is to convert enough of those people into repeat customers. It’s really a numbers game because only a certain number of those initial visitors are going to come back after either a walk-in or a birthday party.
FECs spend a lot of money trying to attract new customers but do not focus enough on increasing the frequency of visitation of their core customers. Once you attract a customer, then you have to give them real incentives to come back. That means achieving the following:
1. Providing a quality experience (in fact, this entire column presupposes a well managed FEC providing a quality entertainment experience)
2. Ensuring that the amount of money a person spends to have fun is fair, given the market demographics of your community.
3. Offer different incentives for each type of customer to register and to come back again (VIP plus bring a friend programs).
4. Finally, offer an incentive for that person to bring someone else with them when they return and get that new person to register.
The average FEC can initially live off a 30,000-customer base, but we all know that operating costs continue to increase and the current customer base will naturally decrease. If you want to grow your profits you’ve got to turn that 30,000 base (100,000 visits) into a larger base and at the same time increase the frequency of visitation. Just a small increase in both categories can quickly add up in total attendance. And that is without increasing average per capita spending!
There are so many factors that come into play in building and operating a profitable FEC. But if you start with the right location with the right amount of investment, you give yourself a fighting chance. Then, if you reinvest in your facility and you learn how to target the core customers and get them to visit more frequently, you can propel your growth instead of stagnating or losing ground after the initial novelty wears off. Unfortunately, many operators are just doing the basics or less. But it doesn’t have to be that way. We can do so much with just a little bit of extra effort to build our businesses.
Frank Seninsky is president of Alpha-Omega Group of companies, which includes a consulting agency, Amusement Entertainment Management (AEM), and a nationwide revenue sharing equipment provider, Alpha-BET Entertainment; all are headquartered in East Brunswick, New Jersey. Along with industry consultant Randy White, Seninsky also heads up Foundations Entertainment University. During his 41 years in coin-op, Seninsky has presented nearly 250 seminars and penned more than 1,000 articles. He has served as president of the Amusement and Music Operators Association from 1999-2000 and is a past chairman of the International Association for the Leisure & Entertainment Industry. Seninsky can be reached at 732/254-3773 or by email at firstname.lastname@example.org and www.AEMLLC.com.
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