It's the burning question for many planners: how to negotiate with hotels to get the best deal for their meetings. Tim Brown, a partner with Meeting Sites Resource, Irvine, Calif., explored that subject in depth in a session he led on negotiations and contracts at NEMICE (New England Meetings Industry Conference & Exposition), held in Boston this spring. Understanding the variables” that come into play, Brown said, is fundamental to getting a good deal.
Variables that affect hotel room pricing include transient demand at the property and whether you're in high, low, or shoulder season; arrival/departure patterns; guest room-to-meeting space ratio; F&B; lead time; meeting history; potential for incremental revenue; and the total value of your business. Another factor is the potential for risk to the hotel, such as the likelihood you won't be able to fill your room block and the cancellation and attrition clauses in your contract.
In general, hotels like Sunday-to-Wednesday and Thursday-to-Sunday arrival/departure patterns, Brown said. “This is very important. Be sure to ask what the hotel's patterns are.” He also suggests that you add your square footage needs to your RFP, and that you calculate the total financial contribution of your meeting for the hotel. “Calculate your average F&B for each function, room rates, spa use — everything,” he said.
Another tip: Don't depend on your relationship with sales to fix problems after a contract is signed. It should all be in the contract, not handled after the fact.
Be sure to have a sliding scale in the contract in case you have to cancel, he said. “The further out you cancel, the less you pay because you're giving them more time to recoup their loss.” Managed hotels like to be able to rebook business within their fiscal time frame — once that quarter's numbers are in, that's it as far as they're concerned. Business in the next cycle won't help this cycle's numbers.
Brown also advised that you know the difference between mitigated and liquidated damages. “In liquidated damages, you have to pay the hotel within a certain time frame, usually 30 days,” he said. “It doesn't matter if they resell the rooms or not. Liquidated means they want the check right now.”
But with mitigated damages, “the hotel is obligated to resell as much as they can to reduce or eliminate your damages. Deposits made by the group go into the equation. Include in the contract that you can put 75 percent of what they don't resell toward a future meeting.”
As part of his presentation, Brown provided a case study that asked attendees to try to figure out a way to increase the chances of placing what was pretty much a dog of a meeting: The requested rates were well below what the hotel wanted, the F&B dollars were below the hotel's group average, its catering-per-room night was also below average, it's a space hog compared to the room nights, the arrival/departure and seasonality patterns were not good, and its history didn't back up a request for the larger room block being requested. The RFP for this meeting also said it would accept either a cancellation or attrition clause, but not both.
Among the ideas attendees came up with were adding in both cancellation and attrition to the contract, reducing the room block to more reasonable levels, adding in more F&B, changing the arrival/departure pattern, and going to shoulder or low season. Other ideas: reuse and consolidate the meeting space, shrink set-up and tear-down times for the expo, and guarantee future business with the hotel and lock in a rate. Brown cautioned that, with the last idea, “It's difficult in this environment to judge what that rate you lock in might be by the time of your meeting. Oversupply might return, and the rate won't look so good.”
Keep in mind that hotels get a 74 percent margin on rooms, a 36 percent margin on group food and beverage, a 19 percent margin on F&B outlets, a 15 percent margin on recreational outlets, and a 15 percent margin on retail and miscellaneous departments.
As to expenses as percentage of revenues, hotels spend 33 percent on debt service/renovation, 30 percent on employee costs, 23 percent on operating costs, 8 percent on energy, and just 6 percent on sales and marketing.
Put everything in writing, and be specific.
Evaluate and outline your specific contract requirements and present them to the hotel, along with value-added concessions and performance clauses. Request a return date to receive the hotel contract.
There is no “contract” until both parties have signed the document. Written changes on the contract with date and initials constitute a counter-offer, not a done deal.
Negotiate an option date to sign and return the contract. (If you can't make the date, get an extension in writing.)