In the hotel industry, a key financial measure of a property's performance is Revenue Per Available Room, or RevPAR. That's the amount of money that each room in a hotel generates on a nightly, weekly, or monthly basis. RevPAR is affected by occupancy and the average daily rate of the hotel's occupied rooms, but for many hoteliers it's much more than this; it is a measurement that controls whether the hotel sales department accepts or rejects a piece of group business.
To make this decision, revenue managers look at factors such as the number of rooms occupied by transient guests for the time period that the group's meeting will take place. They do this to determine the maximum number of rooms that the hotel can offer the group and the rate that they must secure for those rooms.
For this reason, some hotels insist that rooms booked after the group's cutoff date or in excess of the group's block be accepted on a space-available basis at “prevailing” rates rather than at the group rate. This approach can cause problems for a group whose attendees typically wait until the last minute to reserve hotel rooms, or who book early, thus exceeding the block, only to cancel their reservations at the last minute.
How can planners cope with these challenges? Including a strong meeting history in the hotel contract can help.
For example, a planner who knows that his or her block is normally exceeded, only to fall off later, should stipulate that the hotel accept reservations at the group rate for 105 percent to 110 percent (or more, if history supports it) of the reserved sleeping room block. A contract should also state that reservations received after the cutoff date will be accepted by the hotel on a space-available basis at the group rate; in other words, if the hotel has a room to sell, it goes to the meeting attendee at the group rate, not at the then-current rate for transient business.
Food-and-beverage expenditures play a role, too. Many hotels designate a minimum amount that groups should — or must — spend on catered F&B functions during the meeting. This amount is sometimes based on per-person/per-day spending (e.g., $75) that the hotel would like to achieve. But such numbers may be unrealistic for some groups, especially those that do not offer many F&B functions or those whose meetings are held in venues with several good restaurants nearby.
While F&B minimums give planners flexibility in scheduling catered functions, the contractual minimum must be a number that the group can realistically achieve. Planners whose events have affiliated groups meeting at the same time (so-called “in conjunction with” meetings) should state in the contract that revenue from those ICW events will be counted toward the group's F&B minimum.
Planners should also take into account sleeping-room attrition when agreeing on a reasonable F&B minimum. In other words, check to make sure that the hotel is basing required spending on less than 100 percent sleeping room pickup. This way the group is not doubly penalized if its expected attendance fails to materialize. Also, if any shortfall in required F&B spending occurs, the group should pay for it at the rate of the hotel's lost profit on F&B, which is typically 25 percent to 40 percent of revenue. Planners should seek to avoid paying 100 percent of any F&B shortfall because that would reward the hotel.
James M. Goldberg is a principal in the Washington, D.C., law firm of Goldberg & Associates PLLC. His practice focuses on representing associations, corporations, and independent meeting planners. He is the author of The Meeting Planner's Legal Handbook.