Consider the New Concession

by Joanna Jeronimo

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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 [email protected]
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This blog was previously published on Linked In.

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