The Group Block That Looks Great on Paper
You manage a 220-room select-service hotel. A corporate group requests 180 room nights across a Tuesday–Thursday window at a negotiated rate of $119, which is $34 below your current transient ADR of $153. The group also wants 40 rooms held as complimentary and a meeting room comped. Your director of sales is enthusiastic because the group 'fills the house' and asks you to approve. Your current occupancy forecast for those three nights is 68%, 74%, and 61%, with transient demand historically firming in the final 10 days. The group needs an answer within 48 hours, and once contracted the rooms are committed.
1. Should you approve the group as requested? Walk through the displacement and contribution logic before answering.
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Start with displacement, not with the headline occupancy gain. On the Tuesday night you are at 68% (about 150 rooms), so 60 group rooms displace roughly zero transient business - that night is nearly pure incremental contribution. Wednesday at 74% (about 163 rooms) leaves 57 rooms; a 60-room block displaces a few rooms. Thursday at 61% (about 134 rooms) has plenty of slack. So the block largely fills unused capacity on two of three nights.
Now compute contribution, not rate. Group revenue is 180 × $119 = $21,420. But 40 comp rooms and a comped meeting room are real costs. If the 40 comps are drawn from the paid block, you are effectively selling 140 paid rooms plus 40 free - an effective rate of $21,420 / 180 = $119 only if comps are additive; if comps reduce paid rooms, paid revenue is 140 × $119 = $16,660 and the effective rate drops to about $92.56 per occupied room. Add variable costs (housekeeping, amenities, ~$28/room) and the meeting room cost.
Displaced transient revenue: only Wednesday has meaningful displacement. If ~3 transient rooms at $153 are displaced, that is ~$459 forgone versus group contribution on those rooms. The block still clears on contribution.
Recommendation: approve, but renegotiate the structure - cap comps at 1 per 40 paid (not 40 flat), or convert comps to a discounted rate, and tie the meeting room comp to a food-and-beverage minimum. The judgement point is that 'filling the house' is not the goal; incremental contribution net of displacement and comps is.
2. What would change your answer if the window were a sold-out Friday–Saturday instead?
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On sold-out weekend nights, every group room displaces a transient room at $153+, so displacement cost is real on every unit. Compare: group net contribution per room after variable cost ≈ $119 − $28 = $91 (before comps). Transient net ≈ $153 − $28 = $125. Each displaced room costs about $34 in contribution. Across 180 room nights that is roughly $6,120 of forgone contribution, plus the comped rooms and meeting space that could have sold to a higher-rated weekend group or transient.
On a sold-out weekend you should decline at $119 or reprice to at least transient parity, and you would not give 40 comps. The lesson: the same group request is a yes on soft midweek and a no on compressed weekend - the decision is capacity-context dependent, not rate dependent.