The Citywide Group That Would Displace a Sold-Out Wednesday
A 300-room downtown hotel is negotiating a three-night citywide-event group: 200 rooms per night, Tuesday to Thursday, at $179, plus $40,000 of F&B at a 25% contribution margin and a $5,000 meeting-room rental. The group would add $12,000 of incremental banquet labor and utilities beyond F&B cost of sales. The transient forecast for those nights, built from pace and the citywide compression calendar, is 210 rooms at $229 on Tuesday, 270 rooms at $279 on Wednesday and 235 rooms at $249 on Thursday. Variable cost per occupied room is $40. The sales team argues the group fills a soft Tuesday and brings outlet covers the hotel would never see; the revenue manager points out that Wednesday is effectively sold out and that the contract carries a 30% attrition clause with no cancellation fee. A second enquiry - 120 rooms on the Wednesday only at $189 - is waiting for an answer. The hotel has no other group demand for those dates.
1. Run a full displacement analysis on the three-night group. Accept or decline, with numbers.
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Step 1 - Rooms available for the group after forecast transient demand
- Tuesday: 300 - 210 = 90 free, group needs 200, so 110 transient rooms displaced.
- Wednesday: 300 - 270 = 30 free, so 170 displaced.
- Thursday: 300 - 235 = 65 free, so 135 displaced.
- Total displaced: 415 room nights.
Step 2 - Contribution lost from displacement
- Tue: 110 x ($229 - $40) = $20,790
- Wed: 170 x ($279 - $40) = $40,630
- Thu: 135 x ($249 - $40) = $28,215
- Total displaced contribution = $89,635
Step 3 - Contribution gained from the group
- Rooms: 600 x ($179 - $40) = $83,400
- F&B: $40,000 x 25% = $10,000
- Rental: $5,000
- Incremental labor and utilities: -$12,000
- Total group contribution = $86,400
Step 4 - Net effect: -$3,235.
On the numbers alone this is close to neutral but negative, and the risk is one-sided. The group is being asked to fill Tuesday, where there genuinely is slack, while taking 170 rooms off a Wednesday that would sell at $279. The F&B and rental are the only reason the deal is nearly break-even.
Conclusion: decline as structured. Not because the gap is large - it is not - but because the contract shifts all the downside to the hotel (30% attrition, no fee) while the upside is already priced away. A decline here should be paired with a counter, not a refusal.
2. Construct the counter-offer and evaluate the 120-room Wednesday-only enquiry. Show the break-even price.
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Break-even group rate (3 nights): Room revenue needed = displaced contribution + incremental costs - F&B - rental = $89,635 + $12,000 - $10,000 - $5,000 = $86,635. $86,635 / 600 room nights = $144.4 contribution per room, so the required rate is $144.4 + $40 = $184.4. Round to $185.
Counter-offer A - $185 flat, three nights, firm Wednesday block. At $185 the group delivers 600 x $145 = $87,000 + $10,000 + $5,000 - $12,000 = $90,000, just ahead of the $89,635 it displaces. Thin, so demand a firm Wednesday commitment or a cancellation fee.
Counter-offer B - Tuesday only, or Tuesday plus a reduced Thursday block. Tuesday has 90 rooms of genuine slack:
- Tuesday-only, 200 rooms: displaces 110 at $229 = $26,290 contribution lost. Group rooms contribute 200 x $139 = $27,800, plus F&B share and rental. Positive, because Tuesday demand is genuinely incremental.
- This is the best structural answer: give the group the night where the hotel has capacity and let them split the Wednesday requirement.
The 120-room Wednesday-only enquiry at $189:
- 120 rooms displace 90 transient rooms at $279 (only 30 free). Displaced contribution = 90 x $239 = $21,510.
- Group contribution = 120 x ($189 - $40) = $17,880, plus any F&B.
- Net: -$3,630 on the forecast as given.
But the forecast carries error. If Wednesday transient materialises at 250 rather than 270, only 70 rooms are displaced ($16,730), and the group is +$1,150. So: accept only with a no-attrition, firm-block contract and if pace supports 250; otherwise counter at $205, which restores the margin at the 270 forecast.
On the 30% attrition: each unfilled contracted room on Wednesday costs $239 of displaced contribution. 30% attrition on 200 rooms is 60 rooms, about $14,300 of additional downside. Any acceptance must have a sliding-scale attrition clause or a deposit.
3. Which factors outside the displacement maths could legitimately change your recommendation, and how would you present this to the owner?
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Factors that could legitimately move the decision
- Forecast reliability. The displacement case rests on the transient forecast. On a citywide date, pace confidence is high; on a soft Tuesday it is low. Apply a confidence band: if Wednesday transient lands at 250 instead of 270, the three-night deal flips positive. Present the deal with a sensitivity, not a single number.
- F&B outlet capture not in the $40,000. Room-service, breakfast and bar spend from 500-plus attendees is often 30-50% above the contracted F&B. If outlet capture is genuinely incremental (not displacing leisure covers), add it - but only the margin, not the revenue.
- Relationship and rebooking value. A citywide rotation client is a future piece of business. That is a real argument, but it is not a reason to book at a loss on the peak night; it is a reason to structure a multi-year agreement with year-round dates.
- Segment integrity. Discounting Wednesday to a group at $179 when transient pays $279 teaches the market what the hotel is worth and is visible to competitors and to the client's peers.
- Operational strain. 200 rooms plus a banquet on a sold-out Wednesday, with house count at 300 - check whether service standards and staffing are genuinely deliverable.
Presenting to the owner Lead with one page: displaced contribution $89.6k vs. group contribution $86.4k, net -$3.2k, then three options - accept at $185, take Tuesday only, decline - each with the net contribution and the risk. State the recommendation (counter at $185 with a firm Wednesday block, or take Tuesday only) and the single metric that will tell you whether it worked: contribution per available room for the three nights versus the no-group forecast.