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Consider the New Concession

6/14/2016

1 Comment

 
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by Joanna Jeronimo

The Old
Your RFP is evaluated on the value of the business that your group would bring to the hotel.  Until recently, sales managers could hand out those concessions they thought would capture the business, and while they may have been given a monetary value, those amounts were not counted against the actual value of your business. 

The New
Hotels are now using new software that calculates the value of every concession, and the value of those concessions is counted as a negative number that needs to be recaptured.

The Example
Using a simplified example, let’s say you want two suites comped and the hotel puts a value of $1,000 per night for 3 nights or $3,000.  If you have 50 rooms at $100 for those three nights, you have 150 total room nights or $15,000 in room revenue.  

Now that the hotel has to recapture that negative $3,000, it will be added to the cost of the room nights, bringing the room cost up to $120 per night instead of $100 and you are now responsible for $18,000 in room revenue instead of $15,000.

That extra $20 per night adds up to $60 for three nights and for budget conscious attendees that could be enough reason to look outside the block at a cheaper option.  If you lose 20% of your block at $120, with 10% attrition allowance, you will owe the hotel an additional $1,800.  Lose 30% of your block and your attrition will be $3,600 (20% after 10% allowance).  

It Gets Worse
Additionally, if you have attrition you often lose your concessions.  So in this case, you’ll have to pay the attrition of $3,600, plus pay for the $3,000 in concessions you lost, totaling $6,600.  Moreover, each of your 35 attendees paid an additional $60 each, or $2,100 for all, so the total paid for this ‘free’ concession is $8,700!

Conclusion
Does this mean you shouldn’t ask for concessions?  No, it means you need to know which hotels are using the new software, and you need to balance the value of your groups’ business with the value of the requested concessions. 

​And whether your group pays $100 or $500 per night, you need to make sure your contracts are structured so you don’t have the negative domino effect of our example.

With over 15 years of industry experience, Joanna Jeronimo, Global Account Executive with ConferenceDirect, assists her clients through the site selection process, from crafting effective RFPs that get positive hotel responses and positioning the group’s business in a favorable light, through setting up site visits and advising on selections to negotiating the final contract and resolving any after contract issues that may arise.  Joanna has been a member of SPIN since 2009 and can be reached at Joanna.jeronimo@conferencedirect.com
​

This blog was previously published on Linked In.

Any views or opinions represented in this blog belong to the writer and do not necessarily reflect the view or opinion of SPIN. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information and will not be liable for any losses, injuries, or damages from the use of this information.

This blog may not be copied and published without the written permission of the writer and SPIN.

Have something to say? Say it on The Chatter, SPiN members are invited to submit Blogs for publication in The Chatter. If you are interested send an email to blog@spinplanners.com. Let us know what you want to blog about and we will contact you.
 
 
 

1 Comment
Mary Kelly link
6/17/2016 11:32:04 am

Joanna,
You did a terrific job explaining how comps are calculated in this very interesting article. I didn't realize that the concessions were "counted" against planners like this. Your points also explain why blocks of rooms are occasionally higher than what attendees can secure on their own.
Thank you for the information!
Warmly,
Mary

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