Steps to Success: Valuing and Pricing Group Assets

Group business is undeniably an important piece of the hotel revenue puzzle. However, not all group revenue is equally valuable or desirable. To achieve an ideal mix of group and transient business, hotels must go through a detailed evaluation process, which can be greatly aided by an advanced revenue management system.

In this article, you will find the key steps and considerations for evaluating group business opportunities.

Qualifying your group business begins with identifying the market segment it falls into. While your hotel may accommodate many different types of groups, most fall into:

• Corporate Group
• Association
• MICE (Meetings, Incentives, Conferences and Fairs)
• SMERF (Social, Military, Educational, Religious and Fraternal)
• Sports, entertainment, recreation
• Wholesale tour groups

Different segments have different booking and stay patterns. For example, most weddings are held in the summer and on weekends, while corporate meetings are usually held during the week.

By identifying typical patterns in each segment, the hotel can improve planning and forecasting. When group stay patterns are well coordinated, they can provide a solid foundation for year-round operations.

To evaluate a group, you will also need a clear understanding of its basic needs such as:

• Rooms and guests per night
• Stay pattern (time of year, days of the week) and length of stay
• Room type requirements (managed or assigned)
• Functional space requirements
• Food and beverage requirements
• On-site activities and other needs

It is also important to consider:

• How many days until arrival? A longer booking window gives you more time to find better value deals.
• Is this a one-time booking or a recurring event?
• Does the group need one or more hotels or is the event taking place across the city? If multiple properties are needed, there may be a cross-selling opportunity.

Next, it's time to determine how busy the hotel will be on the requested dates. If demand is high, the hotel may decide to decline the opportunity or propose a high rate. If demand is low, the hotel will have more flexibility with pricing and booking conditions.

To forecast transient demand, an advanced RMS draws on multiple data sources, including historical patterns, seasonality, booking pace, competitor behavior, market demand, events, and holidays.

For group operations, RMS technology also considers group-specific factors such as rooms booked, the likelihood of provisional groups becoming permanent, rebooking prospects, and historical patterns such as booking window, seasonality, cancellations, and attrition.

Demand forecasting is used to assess the displacement or value of any business that is likely to book if the group does not fill the rooms. If the displacement is high, operators can choose to forgo the opportunity or offer higher rates. If the displacement is low, the sales team has more flexibility to offer an attractive rate.

With an advanced RMS, movement analysis also considers the impact of accepting a group on availability, BAR rates, last room value (the minimum acceptable transient rate), and overall performance. It also considers impacts on the days before the group arrives and after they depart.

Once you have assessed the needs of the group and the impact of the move, you will now have a clearer idea of ​​the optimal price to quote. A group pricing module integrated into an advanced RMS will take into account numerous factors, including the requested dates, group size, market segment, historical ADR of the group, shifted revenue, occupancy forecasts, and demand mix.

Based on the analysis, an advanced RMS with this module can provide a break-even rate (the lowest price that will generate the same revenue as what is being replaced) and recommended optimal rates. Additionally, break-even and optimal rates are available by room class, as well as alternate date options (if the group is flexible in terms of timing).

Up to this point, the steps outlined have focused only on room revenue. However, revenue from banquets and ancillary services often represent a significant portion of the group's overall revenue. To properly evaluate the group's business and price optimally, hotels must also take this revenue into account.

An advanced RMS will consider total revenue in group assessments, including average expected spending on conferences and banquets, parking, spa treatments, and other revenue sources. This level of revenue data allows for a more holistic assessment of revenue shifting.

Another missing ingredient in traditional group valuations is costs, which also vary significantly across different market segments and group types. Only by understanding these costs and comparing them to the costs associated with displaced activities can a hotel assess the true value of a group.

Costs may include:

• Acquisition cost such as commissions and free room assignments
• Room maintenance costs, including labor and utilities
• Costs of service functions, including labor and audiovisual services
• Discounts as a percentage of food and beverage expenses
• Transfer or accompaniment costs for guests in overbooking situations

For example, a corporate group needing multiple meeting rooms may seem tempting, but if it is booked through a third-party contracted planner and the rooms are labor-intensive to set up, the costs may outweigh the benefits.

As with ancillary revenue, operators can set up an advanced RMS with the acquisition and maintenance costs of transient businesses to enable a comprehensive assessment of the move.

Once a hotel knows the total revenue and costs associated with a group, it can calculate the expected profitability. Profitability is the most important criterion in group decisions, yet hotels often accept or reject groups without a clear picture of their value.

It is also important to recognize that profit margins can vary significantly based on the revenue stream. For example, banquet food and beverage revenues are often lumped together, even though the profit margins on alcohol sales are much higher than those on food sales.

By considering total revenue, costs and profit margins for each revenue stream and for the group as a whole, the hotel has a complete picture of the value and movement of the group and can negotiate the prices and terms that best meet its financial goals.

The terms negotiated by a hotel as part of a group booking can also have a substantial impact on the hotel's revenue and profitability. With a clear view of the value of the group, the sales manager will know which terms are flexible and which are non-negotiable.

This includes:

• Cancellation Policy and Deadlines
• Abandonment allowance
• Meeting room assignments and updates
• Functional Space Rental and Upgrades
• Minimum spend on food and drinks
• Discounts on food and drinks, spa, activities or other services
• Incentives to upgrade room types and increase total spend
• Meeting planner or loyalty points, discounts or rewards

By monitoring the results of group decisions over time, the hotel can determine what is working and where changes may be needed. This requires going beyond basic performance metrics to set and monitor key group performance metrics.

• Total Revenue Per Available Room (TRevPAR)
• Gross Operating Margin per Available Room (GOPPAR)
• Profit margins by source of income
• Occupancy Group Room Revenue (ROGR)
• Use of overall and group functional space
• Revenue per square foot or available meter
• Entries per participant
• Density of participants
• Group Conversion Rates

Ensuring the quality and consistency of data entered into hotel systems is critical to accurate performance measurement. Additionally, incentivizing staff on profitability rather than revenue will help accelerate the path to total profitability optimization.

As you can see, quickly and effectively assessing group business opportunities for optimal revenue outcomes can be a daunting task without the right tools to facilitate the process. But with an advanced RMS, sales teams have a partner to augment their expertise, helping them efficiently make better, more profitable revenue decisions.