Smart Money: How to Stop the Bleeding
Author: Hunter Holcombe
June 2008
Columns
By and large, meeting planning is a friendly, social profession, and is full of benevolent, happy words—banquet, networking, team-building, cocktail reception.
But the business is not all wine and roses, and there are some nasty terms thrown in there as well—like attrition.Attrition is similar to that release you’re required to sign before engaging in something really fun yet slightly dangerous, like river-rafting or bungee jumping. You don’t want to think about it—the “what if” scenario—so you quickly sign the release, forget about it and get back to the fun.
Your relationships with hotels are generally friendly and upbeat as well. After all, you’re doing good business together, and you don’t want to sour that relationship with the nitty-gritty of unsavory contraction negotiations. This is one of the reasons attrition is often neglected. When you don’t make your room block, however, and the hotel comes calling to collect its missing revenue, you may wish you’d paid more attention to the fine print.
“It is really a game,” says Patricia Zollman, CMP, regional director for HelmsBriscoe, a global meetings procurement firm. “In particular, hotels are really trying to get new planners to understand that they have to hit their numbers or they will have to pay.”
As with many aspects of meeting planning, experience and history with a company go a long way. If you know a group’s record with filling their room blocks, you will be armed with the kind of information you need to zero in on the best block size and to negotiate attrition clauses with the hotel. For example, if you’re booking for a tightly run corporate group that has a long history of highly mandatory meetings with rare cancellations, you have a lot of evidence for persuading the hotel to give you generous wiggle room. Or, if you do fall short of the block, the hotel knows you are a reliable customer—and they are much more likely to apply room credit to future meetings.
It’s perfectly understandable for a hotel to require you to pay if you fall short of your block. After all, they lose money for every unpaid room they could have sold to an individual traveler. However, there are a lot of factors that determine what percentage of those room rates they should be entitled to. Being aware of those factors will make all the difference when it comes time to pay up. “You need to make these things clear, right at the beginning when you are doing your RFPs,” Zollman warns.
One major clause to include in your contract is making sure all rooms used for your event are counted when calculating your room pickup. Just because you have a block at your event’s headquarter hotel doesn’t mean everyone in your group will book inside it. If an early registration discount has expired, or if an attendee simply isn’t aware, they might go ahead and book their own room at that property. The hotel should be including these as rooms used inside the block.
Another important detail is how soon before the event you are allowed to change the size of your block. If the hotel allows you to make changes up to a few weeks before, you will have a much better idea of how many attendees will book and, therefore, much less chance of attrition. Zollman says a typical cutoff point is three weeks. However, if the hotel is more remote, such as a mountain resort, they may ask for up to two months. Remember that, unless you’re planning for a corporate group that firmly mandates its meeting attendance (and booking inside the block), it’s largely your responsibility for getting that block filled. Knowing how to market your meeting (see pg. 34) will go a long way toward making your attendees aware of the room block.
How much attrition does a property typically allow before they begin to charge you for the rooms? Typically, hotels start the negotiation process by allowing you to fall short of your block by up to 10 percent—it’s up to you to make a case for greater leniency. Zollman says that, after 9/11, planners could easily get up to 20 percent. In the last few years, however, they may have been hard-pressed to secure 15 percent, and more-remote properties won’t budge beyond 10 percent. But, depending on gas prices and the slowing economy, that number might head back up. “I think we will see some stuff loosen up,” Zollman says. “I’m already starting to see it.”
Once you’ve shaken hands over this number, you must then determine how much you will be charged for unfilled rooms. With new planners, hotels might try to charge the full amount they would have received for the room (at the group rate, of course). However, if the property is able to sell those rooms back to the public, they are actually making twice as much money, and whatever you give them is essentially profit. Make sure there is a resell clause that spells out this policy.
Also, keep in mind that a hotel makes more money from an unused, paid-for room than if someone stayed there (roughly 20 percent goes to cleaning, service, etc.), so you really should only owe them 80 percent of the rate.
In general, if a hotel wants to keep you as a client, it’s not in their best interest to take advantage of you and lose your future business. But, if you are ignorant of attrition clauses and let the hotel control the contract, you have no one to blame but yourself when a worst-case scenario comes true and you find your budget being bled because you couldn’t fill your block. If you’re dealing with a major event and a large amount of money, it might be worth bringing in a lawyer to go over the details.
Finally—and, as always—know your group. The better you know your attendees, the better you can predict their booking behavior. If you have a diverse group, especially a financially diverse group, you would be smart to book a series of smaller blocks at a wide range of hotels. Out-pricing or under-pricing your attendees is a sure way to drive them outside your hotel commitment.
