Chapter 2. Fixed versus Variable Costs

Transcription

1 Chapter 11 Total Hotel Reveue Maagemet Chapter 2 Key Learig Objectives: To uderstad the costs of a occupied room ad why it is importat to cosider this whe executig a reveue strategy; To uderstad why reveue maagemet has become more tha rooms reveue ad pricig; To lear what total hotel reveue maagemet should iclude. chage ad is depedet o the total umber of additioal rooms sold. A example of a variable cost is a additioal housekeeper that will be scheduled to work oly after a certai umber of rooms are sold. Total Costs Just like What gets measured gets doe, hotels have realized that measuremets eed to iclude more tha just rooms reveue. Over the last several years, the idustry has recogized that reveue maagemet ca o loger be a tactical approach to room ad pricig maagemet oly. With techological ad maagemet support, reveue maagemet must be ad is beig itegrated ito all aspects of hotel marketig ad operatioal strategies. Goig beyod its role of maagig room ivetory ad pricig, reveue maagemet will cosider total reveue cotributios icludig group busiess ad its acillary reveues ad fuctio space maagemet as well as other o-room etities. I additio to total reveue cotributios, reveue maagemet will examie various costs ad esure the cost factors are take ito cosideratio allowig the focus to be o profit ad ot just reveue. Costs of Occupyig a Room It is obvious to say that hoteliers have various costs associated with every occupied room. However, there are differet types of costs that are importat for hoteliers to uderstad, because they impact results i differet ways. The followig sectio addresses the differeces betwee fixed costs ad variable costs. Fixed versus Variable Costs Part of uderstadig the costs associated with occupyig a room, ad thus uderstadig the profitability potetial, is to uderstad the differece betwee a fixed cost ad a variable cost. A fixed cost is the cost associated with a occupied room regardless of the total umber of rooms occupied. Hotels will icur costs that require a certai level of staffig at the frot office such as the frot desk, phoe operators ad bell staff regardless of how may rooms are occupied o a give ight. These costs are icurred whe the hotel opes its doors ad operate regardless of the umber of rooms occupied. A variable cost is the additioal cost that will be icurred whe additioal rooms are sold. A variable cost will $ Variable Costs Fixed Costs Uits Purpose The purpose of uderstadig the costs of a occupied room is to allow hoteliers to uderstad the expeses per occupied room. Beig able to idetify ad uderstad the expeses per occupied room provides hoteliers with a opportuity to ot oly cotrol expeses but also to idetify ay treds that may be impactig busiess. It also plays a importat role i uderstadig the efforts that go ito icreasig occupacy. As hoteliers idetify ways to icrease occupacy, the cost of the efforts plus the costs associated with additioal rooms eed to be weighed agaist the additioal reveue that ca be achieved by sellig those rooms. Thus we have a uderstadig of the profit from a occupied room. Acillary Reveues If properly uderstood ad maximized, acillary reveues ca make a geerous impact o a hotel s overall profitability. This sectio explais acillary reveues ad addresses how they ca become a importat part of a hotel s strategy. Defiitio Acillary reveues ca be defied as ay additioal reveues geerated from products ad services other tha the mai products ad services offered by a hotel. This will of course vary depedig o the hotel ad the type of services offered, but i geeral, acillary reveues iclude reveues from movies, Iteret access, busiess ceter, mii-bar, laudry, spa services ad fitess ceter. The Evolvig Dyamics of Reveue Maagemet 109

2 Beefits Uderstadig a hotel s acillary reveues ad idetifyig additioal acillary reveues ca brig sigificat beefits to hotels. I some cases what begis as acillary reveue may evetually become a mai source of reveue for the hotel. Uderstadig a hotel s acillary reveues provides the hotel with a opportuity to idetify those that have the potetial to become a mai source of reveue. It also allows hotels to use this iformatio to assess a accurate value for various types of customers. Challeges Part of uderstadig acillary reveues icludes overcomig the challeges that come alog with them. Proper ad complete collectio of the iformatio ca be a challege for some, while the techology to maage the iformatio ca be aother challege. Without the right techology ad the right iformatio collectio procedures, hoteliers will ot be able to idetify the reveues that have the best potetial or produce the highest returs. It is of the utmost importace that hoteliers have the ability to collect the iformatio eeded ad to be able to slice ad dice the iformatio i a meaigful way. Uderstadig Acillary Reveues by Segmet I order to optimize the potetial for acillary reveues, it is importat to be able to collect ad aalyze them for each segmet of the market. Differet customer segmets brig differet values ad have differet spedig habits whe travelig. Hoteliers eed to have a solid uderstadig of each segmet s typical spedig habits ad total spedig as this will help i target marketig ad showcasig the total value a hotel has to offer to that target customer. Uderstadig the acillary reveues for each segmet ot oly provides the hotel with the ability to more effectively target the market but also allows a solid uderstadig of each segmet s total potetial value. Oe good example of this is the acillary reveues that are typically brought i by the corporate segmets. Hoteliers who uderstad acillary reveues ad total spedig will have the ability to aalyze the total value of a corporate accout. By uderstadig the total value hoteliers ca the iclude this iformatio i their aalysis of each accout. This ca have a impact o the rate offer. If acillary spedig is high, the a more ecoomical rate may be possible. If acillary spedig is low, the a higher rate is reasoable. Focus o Frot Ed Acillary Reveues Frot ed acillary reveues are the most ofte overlooked by hotel maagemet because they are the reveue streams that are mostly maaged by the frot lie employees. There are several areas of opportuity for hoteliers to sigificatly icrease frot ed acillary reveues. Areas such as up-sellig, cross-sellig, late check out, o-show, early departure fees, late cacellatio fees ad ticket sales commissios are just some of the areas hoteliers ted to overlook. Hotels that do place strog emphasis o these areas ca see a sigificat icrease to the reveue streams for each oe. A good example of oe of the areas i which hotels ca realize sigificat icreases i icremetal reveue is reservatio coversio ratios. The followig is a illustratio of the additioal reveues a hotel ca realize by simply focusig o icreasig the coversio by two additioal reservatios per day per aget. This example assumes a average legth of stay of 1.5 ights, a trasiet average daily rate of $100 ad three reservatio agets. 2 Additioal reservatios per aget per workday X 1.5 Trasiet average stay = 3 Additioal room ights per workday X $100 Trasiet average rate = $300 Additioal reveue per aget per workday X 250 Number of workdays per aget per year = $75,000 Additioal reveue per aget per year X 3 Number of agets = $225,000 Total Additioal Aual Reveue So, a hotel that focuses o icreasig coversio by two additioal reservatios per aget, per day ca achieve a total of $225,000 i additioal reveues per year. While this ca be a very successful focus with a great deal of impact, it is importat to uderstad it will most likely require some type of reservatio sales traiig, which will have a cost associated with it. The agets will eed to lear techiques to improve their skills, icrease ethusiasm, ad have a higher level of comfort i closig the sale. However, the short ad log term beefits of this type of miimal ivestmet would far outweigh the short term cost. 110 The Foudatio of the Hospitality Sales & Marketig Associatio Iteratioal

3 Groups I additio to acillary reveue ad a focus o the total customer value, reveue maagemet has also grow i importace withi the group ad caterig area because it provides tremedous value ad opportuity for reveue growth. Group busiess used to be cosidered good filler for the rooms that trasiet busiess did ot occupy. Today for may hotels, group busiess is a importat part of the hotel s overall strategy. Over the years, hoteliers have come to realize the importace of groups ad the reveues that ca be geerated from them. I order for hotels to be successful i the group area they must esure that they have the proper strategies ad tools i place as well as a thorough uderstadig of the various eeds of groups. It requires establishig measuremets ad value for fuctio space, defiig the total reveue cotributios from each group, maagig fuctio space, ad providig the sales departmet with the kowledge ad tools they eed to properly uderstad the group strategies. This sectio addresses the various aspects ad eeds specific to esurig success whe maximizig groups ad their potetial. Pricig Strategy Developig a pricig strategy for group busiess is just as importat as developig oe for trasiet busiess. The process of developig a group pricig strategy is also similar to that of developig a trasiet pricig strategy. A strategic pricig strategy for groups allows hotels to be proactive ad provides guidelies ad plas that allow the etire hotel sales team to effectively sell their products. Group pricig guidelies will allow the sales departmet to effectively ad cofidetly quote rates for the future. The sales team will kow the price poits for specific demad periods ad specific dates; have the opportuity to work quickly with the customer without havig to take the time to discuss rates with the reveue director before they ca quote; ad ultimately be empowered to achieve their ow sales goals. They will also have a solid uderstadig of the hotel s future outlook, peak demad times ad times of eed. Oe factor uique to group busiess is that the pricig guidelies developed are just that they are guidelies. The pricig strategy for groups should act as a geeral rule for the sales maagers to use i their iitial discussio ad as a basis for the group evaluatio. Oce the sales maager uderstads the full eeds of the group icludig the total sped, they ca the do a full aalysis comparig the total value of the group to the value of other potetial busiess that may be displaced if the group is accepted. (This aalysis is explored i the ext sectio.) After the aalysis is completed, the rate should be adjusted to add value to the group if eeded or ca be decreased if eeded. The group pricig strategy eeds to be created with the etire reveue team. It must be a part of the overall reveue strategy of the hotel ad reflect the guidelies of that strategy. Groups are uique however, ad hoteliers eed to address group-specific elemets. The followig outlies the elemets that the group pricig strategy should address: 112 The Foudatio of the Hospitality Sales & Marketig Associatio Iteratioal

4 Elemet S.W.O.T. aalysis Market positio Seasoal demad Lose-it rate Price poits Group segmetatio Ecoomic cosideratios Special eed periods Room types Room costs Caterig cotributio Purpose / Cosideratios As with trasiet pricig strategy, a hotel is oly able to create a proper group pricig strategy whe it has a solid uderstadig of the hotel s uique attributes, stregths ad weakesses for both services ad products as they relate to groups. This S.W.O.T. aalysis must be developed accordig to what is importat ad uique to groups ad their eeds, which may be differet tha the eeds idetified i a S.W.O.T. aalysis for trasiet busiess. Every hotel must put together a aalysis that allows careful evaluatio of the hotel compared to its competitors with respect to group busiess. It is importat to uderstad the market positio of the hotel withi the competitive set. This will be a importat part of determiig group pricig for the hotel. Some hotels may fid their market positio differs whe evaluatig their market positio with respect to groups. (Refer to Uderstadig the Market sectio for more details o this.) Oe of the fudametals for a pricig strategy is to first uderstad the market demad for the various seasos i the marketplace. Flexibility for seasoal rates must be take ito cosideratio. Determie the lowest price poit that is acceptable for the hotel. Regardless of the occupacy, what is the absolute lowest rate the hotel is willig to accept? Set this as the lose-it rate. Determie the various price poits for each of the group market segmets. Uderstadig the group segmetatio that is specific to the marketplace AND to the hotel is critical. Every hotel must idetify the target group segmets that are appropriate ad create price poits that satisfy each of them. Idetify the future ecoomic status for the time of the group request. Based o this iformatio, this will be the price poit that is appropriate i that year. * Idetify the hotel s eed periods ad areas of opportuity. This may iclude holidays, special evets i the marketplace or low demad times. Idetify these times ad create a actio pla to target appropriate group segmets. Make this a part of the overall group strategy, ot a afterthought. Idetify the room types that should be icluded i group pricig. Uderstadig the direct ad idirect costs associated with rooms is a importat part of pricig. Kowig the costs ad icremetal costs will esure that profits ca become the focus ad ultimately be icorporated as part of the pricig strategy. Idetify food ad beverage cotributio for each group. This ca have a sigificat impact o the value of the group. * Price to the peak ad cofidetly sell to the peak, said Jack Easdale of Gaylord Hotels. The Evolvig Dyamics of Reveue Maagemet 113

5 Displacemet Aalysis Part of the process of aalyzig the value of a group is to perform a solid displacemet aalysis. A displacemet compares the value of differet pieces of busiess to idetify the oe that brigs the most value to the hotel. A group displacemet aalysis is the process of aalyzig group busiess based o the total value of the busiess ad comparig it to the total value of the trasiet busiess that would be displaced if the group busiess was accepted. The group value icludes all food ad beverage spedig, meetig room retal ad ay additioal outlet spedig, mius ay costs ivolved. The followig is a example of a simplified displacemet aalysis. It compares a potetial group s busiess to the trasiet displacemet that would occur if the group was accepted at the curret values. Displacemet Aalysis Example Trasiet Rooms ADR $200 $160 Sub-total $8,000 $6,400 Acillary Reveues $1,200 $5,000 Group Room Cleaig Costs <$600> <$600> Caterig Costs $0 <$1,000> TOTAL $8,600 $9,800 Source: Created by Kathlee Culle Commet: The example above is simplified to provide a value compariso betwee group ad trasiet busiess. It does ot take ito cosideratio trasiet legth of stay ad the impact that group acceptace will have o demad for room ights before ad after the group block. At first glace, it appears that the group would ot be profitable because the room reveue from the trasiet busiess brigs i $1,600 more tha the group busiess. However, whe the acillary reveues are added, as well as the costs associated with both pieces of busiess, it turs out that the group is more valuable to the hotel by $1,200. If a aalysis idicates the group is ot profitable ad it is best ot to accept the group, the hotel should cosider offerig alterate dates to the group. Dates with less trasiet demad will result i a more positive impact from the group. Aother optio that will icrease the value of the group is to icrease the rate offered. If you icrease the rate ad revise the aalysis, the overall group value will icrease. I situatios where walkig would apply, that must also be cosidered i the calculatio. Trasiet Rooms ADR $200 $160 Sub-total $8,000 $6,400 Acillary Reveues $1,200 $5,000 Group Room Cleaig Costs <$600> <$600> Caterig Costs $0 <$1,000> Sub-total $8,600 $9,800 Walk Cost <$3,050> TOTAL $8,600 $6,750 Commet: This assumes 10 trasiet guests would be walked for oe ight at a cost of $305 per room. Whe the possibility of walkig is calculated ito the equatio, the group is o loger profitable for the hotel. Aother elemet that should be icluded i the displacemet aalysis is the bookig method. Below is the same sceario with the additio of the bookig method ad the costs associated with the differet chaels as outlied i the Distributio Costs sectio o page 95. Trasiet Rooms ADR $200 $160 Group Sub-total $8,000 $6,400 Acillary Reveues $1,200 $5,000 Room Cleaig Costs <$600> <$600> Caterig Costs $0 <$1,000> Sub-total $8,600 $9,800 Walk Cost <$3,050> Sub-total $8,600 $6,750 Bookig Method Costs <$509.70> <$368.40> TOTAL $8, $6, Note: The bookig methods applied are as follows: Trasiet: Te each of GDS, o-property, third-party ad chai Web site bookigs. Group: 20 o-property ad 20 chai Web site bookigs. 114 The Foudatio of the Hospitality Sales & Marketig Associatio Iteratioal

6 I additio to the displacemet aalysis there are of course other elemets that must be cosidered above ad beyod beig able to compare the umbers. Some of the other cosideratios are listed below. Aother piece of the puzzle that may be importat to cosider for some pieces of group busiess is the log term potetial that this group may brig to the hotel. Will this piece of busiess brig additioal group or trasiet opportuities? If so, whe do we expect them? Will they be durig peak demad dates whe the hotel does ot eed the busiess, or will they be durig slower times whe the hotel eeds the busiess? This eeds to be weighted accordigly. Is this a regular evet that the hotel wishes to capture? Is there kow history to this group? Are there ay other potetial acillary reveues that may be realized through this group? Does this piece of busiess brig ay political advatages to the hotel? Is this a sigificat customer of the hotel compay ad thus, should t the customer s overall value to the etire corporatio be cosidered? These are a few cosideratios that may or may ot apply to the decisio process. If they are applicable to a hotel or a specific piece of group busiess, the they should be cosidered ad weighted accordigly. By combiig the scietific aalysis with huma judgmet, hotels ca optimize the group side of the reveue equatio ad move toward a total hotel approach to reveue maagemet. The fial step i acceptig or rejectig a piece of group busiess is to follow up o the decisios ad measure the results. This will help the hotel ehace decisios i the future ad lear from ay mistakes or oversights. The followig are some suggestios ad cosideratios to help with measurig the results of the group aalysis. Usig the projected group value ad hotel trasiet demad projectios, explore these questios. Profitable decisios will esure that the hotel realizes maximum demad from all segmets. If less profitable decisios are made, the hotel will fid that higher value opportuities preset themselves post-decisio. Always review performace Did the group meet the aticipated reveue objectives? Did the hotel tur away more valuable opportuities? Evaluate demad from all segmets; group, trasiet ad local caterig. How did the hotel perform relative to the competitive set? Occupacy ad ADR for rooms RevPAS (Reveue per Available Square Foot) for space Turdow iformatio Market Share performace Higher value rooms were displaced; OR Higher value fuctio space opportuities were preseted; The competitive set performed better based o demad that existed i the market. Establish ew thresholds for similar time periods to maximize based o what was leared from this situatio. What would they recommed based o what was leared? Caterig Cotributio per Group Room Night The cotributio from caterig ca provide tremedous value ad opportuity for reveue growth. Hotels have two types of caterig busiess. The first is group caterig which is defied as the caterig busiess coected with a group that is utilizig overight guest rooms. The secod type is called local caterig which is caterig busiess that is ot coected with ay overight guest rooms. The Evolvig Dyamics of Reveue Maagemet 115

7 A example of group caterig is a large corporate fuctio where the majority of the attedees stays at the hotel ad atteds the evets. All of the fuctios that result from this group such as breakfasts, luches, diers ad receptios are group caterig fuctios. Group caterig cotributio is directly impacted by periods of lower group occupacy. No-group, or trasiet, busiess has o impact o caterig busiess. Hotels that make the decisio to fill their meetig space with local caterig groups ru the risk of havig to tur away potetial group caterig busiess. This is because may groups require both meetig space ad sleepig rooms. It is importat for hoteliers to uderstad the caterig value of potetial opportuities ad how this cotributes to a group s overall value. They must also kow what the hotel s future demad is for all segmets to be able to determie whether or ot a piece of local caterig busiess would displace potetial group caterig busiess that would have a larger overall cotributio to the hotel s reveue. The caterig cotributio per group room ight measures the amout of caterig a group produces i relatio to the room ights they use. Obviously, a local caterig group s cotributio per group room ight would be zero. Aother measuremet is caterig Reveue per Occupied Group Room (ROGR). This measuremet would be used to compare the cotributio value of two differet pieces of group caterig busiess. The followig is a list of items that ca be cosidered part of caterig cotributio: Meetig or fuctio room retal Food ad beverage Reveue maagemet as it relates to caterig requires hoteliers to establish a measuremet for this area. Reveue per available square foot (RevPAS) is a measuremet of the reveue that a evet geerates based o the square footage used compared to the square footage available. RevPAS ca be applied to both group caterig ad local caterig evets. Aother useful measuremet compares historical day-by-day reveue geerated o a particular day or i a specific fuctio room. (Advisory Board 2010) I order for hoteliers to be successful i this area, there are some basic guidelies that must be established: Caterig miimums Measuremets Demad by segmet Group ad caterig values Average caterig performace Pricig vs. Customer requiremets Hotels must be able to defie the required caterig miimums that are specific for their hotel. Hotels must be able to uderstad how to measure agaist projected demad for the same dates ad space. Hotels have to uderstad their demad for all segmets for all future dates i the strategy widow. Hotels must calculate the estimated value of the group opportuity they are evaluatig. Hotels must have access to ad uderstad the average caterig performace by meal period ad by fuctio space. Hotels eed to have a solid uderstadig of caterig pricig requiremets compared to what the customer requiremets are; thus the profit implicatios. Audio visual / Iteret usage Parkig Valet Busiess ceter Applicable outlets used by group 116 The Foudatio of the Hospitality Sales & Marketig Associatio Iteratioal

8 The fial step i evaluatig caterig busiess is to follow up o the decisios ad measure the results. This will help the hotel whe makig decisios i the future ad they will lear from ay mistakes or oversights that were made. The followig are some suggestios ad cosideratios to help with measurig the results: Usig the projectios ad previous actuals aswer these questios Profitable decisios will esure that the hotel realizes maximum demad from all segmets Did the actual caterig reveue meet the aticipated reveue objectives? Did the hotel perform better by takig this opportuity? Did the hotel maximize reveue ad profit? Occupacy ad ADR for rooms RevPAS (Reveue per Available Square Foot) for space Turdow iformatio Market Share performace If less profitable decisios are made, the hotel will fid that higher value opportuities preset themselves post-decisio Re-bookig opportuities Always review performace Caterig reveue performed at or above expectatios Higher value rooms were displaced OR Higher value space opportuities were preseted That the competitive set performed better based o demad that existed i the market Would the hotel cosider rebookig this evet? What might the hotel recommed be chaged for the future based o past performace? Establish ew thresholds for similar time periods to maximize reveue based o what was leared from this situatio What would they recommed based o what was leared? Followig is a case study provided by a large global hotel compay that illustrates how they were able to improve group reveue by takig a strategic approach to bookig groups. The Evolvig Dyamics of Reveue Maagemet 117

9 Fuctio Space Maagemet Applyig proper reveue maagemet to fuctio space is a rarity for hoteliers. For all of the sophisticatio that they apply to trasiet reveue maagemet, they are seriously lackig i the area of fuctio space maagemet. Hotels fuctio spaces provide substatial icome that could be ehaced by applyig reveue maagemet. For this reaso, some major group hotels have reorgaized ad icluded fuctio space i their reveue maagemet strategy. Oe of the big challeges i this area is that the idustry lacks sophisticated reveue maagemet systems or processes that iclude extesive fuctio space reveue maagemet. I order for techology compaies to develop such software there eeds to be a agreemet o the measuremets for this area. Are measuremets used? Absolutely. But the idustry still lacks a stadard agreemet ad approach o how best to maximize fuctio room potetial. A robust space maagemet practice icludes esurig the space is blocked accurately to avoid dowtime, performig audits of the space o a regular basis, ad blockig space with straight lie availability i mid as this allows for multiple day bookigs. The Measuremet Metrics There are three commo elemets related to the measuremet of fuctio space: 1. Total space Time Reveue As is the case i all reveue maagemet applicatios, the goal of fuctio space reveue maagemet is to maximize the reveue cotributio of each fuctio space for each time period that is available. The measure to apply for this purpose is cotributio per available space for a give time (CoPAST). Hotel maagers ca maipulate price ad evet duratio to affect this measure. CoPAST has the three compoets; cotributio, space ad time. It is suggested that measurig cotributio is preferable to measurig reveue because reveue aloe does ot accout for the varyig profit margis arisig from retig fuctio spaces. Space refers to the umber of square feet or square meters i the fuctio room, ad time refers to the time segmet for which the reveue cotributio is measured. (Kimes, Fuctio space reveue maagemet 2001) Maagig Fuctio Space Maagig fuctio space reveue is more difficult tha dealig with trasiet guest rooms because of the iteractio of fuctio space with room sales ad food & beverage demad. While fuctio space will reap most of its reveue maagemet beefits from pricig, oe should ot dowplay the role of duratio cotrol. Duratio cotrol Duratio ca be maaged i four ways: 1. Refiig the defiitio of duratio Reducig arrival ucertaity Reducig duratio ucertaity Reducig the amout of time betwee fuctios 1. Duratio defiitio Most hotels defie fuctio space duratio by day part, but the defiitio ad umber of day parts varies by hotel. Sice evets ca spa multiple day parts or use oly a fractio of a day part, it is suggested that hotel fuctio space maagers defie duratio as oe hour. Most computerized systems track this iformatio, but it may be difficult to retrieve. If it is impossible to track the fuctio room schedule by the hour, trackig by day parts will work. 2. Arrival ucertaity Arrival ucertaity ivolves two factors: The timig ad quatity of requests The o show ad cacellatio rates of booked evets Determiig the timig ad umber of requests from differet market segmets is a challegig task. Hotels still have a great deal of difficulty forecastig their demad for group rooms, ad most have ot eve attempted to forecast their fuctio space demad. If a hotel ca obtai iformatio o the lead time ad the amout of busiess for major market segmets, it ca make better decisios regardig the level of demad from key customers, whe that demad will occur, ad whe to release space to other market segmets. While hotels have a difficult time forecastig fuctio space demad, they do a good job of reducig cacellatio ad o show rates by requirig o-refudable deposits ad prepaymets for fuctio space. I some high demad cities, hotels eve require prepaymet for the The Evolvig Dyamics of Reveue Maagemet 119

10 requested umber of guest rooms coected with the fuctio space reservatio. This practice protects those hotels from holdig room blocks that o oe picks up at the cotracted rate. 3. Duratio ucertaity Sice evets ca spa multiple days or day parts, hotels must esure that the guest rooms associated with the evet do ot uecessarily displace higher payig trasiet busiess. They must also esure that the evet lasts for the agreed upo legth of time. However, hotels have a much more difficult time esurig that the guest rooms will be occupied for the specified legth of time. May groups, particularly covetios, suffer from high room attritio o the last day or two of the evet. If group members check out early, the hotel is usually stuck with a empty room, uless the hotel also imposes early departure fees or requires prepaymet for all room ights. However, the practice of chargig early departure fees ad room prepaymets may icur customers wrath. 4. Turaroud time I high demad periods, the time eeded to tur the fuctio room aroud from oe customer to the ext ca affect the hotel s ability to meet demad. Hotels that try to miimize the labor costs associated with fuctio room set up ad tear dow ofte ed up turig dow busiess that could have bee accommodated if the hotel had employed a sufficiet umber of employees to tur the room faster. For example, a hotel that requires a twohour set up ad two-hour tear dow for all evets would ot be able to book a meetig that eds at 5:00 p.m. i the same room with a dier that begis at 6:30 p.m. If more employees were assiged to speed the trasitio betwee evets, the labor cost would be more tha covered by the icreased reveue associated with bookig the icremetal evet. Profit Aalysis Fuctio space pricig is complicated by the fact that it caot be priced without cosiderig its effect o room sales ad food & beverage. A price that may seem too low for the fuctio space whe cosidered aloe may be more tha compesated for whe room ad food & beverage reveue are take ito cosideratio as well. Similarly, a high fuctio space price may ultimately be less profitable for the hotel tha it would seem if it is tied to a low guest room rate ad those guests displace higher payig trasiet guests. Fuctio space maagers face two pricig decisios: what price to charge ad how to determie who pays which price. Whe aalyzig which busiess to accept, the reveue director must assess the days ad day parts requested, the umber of fuctio rooms required, the expected umber of guest rooms sold, ad the expected sales of food & beverage, as well as other items. Sice the profit margis for differet reveue streams vary, the reveue director must determie the expected cotributio associated with each evet ad coduct a displacemet aalysis. As for who pays which price? Just like guest rooms, rate feces ca be used to determie this. Note about this sectio: Much of the cotet withi the fuctio space maagemet sectio was take from a article i Corell Hotel & Restaurat Admiistratio Quarterly. (Kimes, Fuctio space reveue maagemet 2001) Key Review Questios: What is the differece betwee a fixed cost ad a variable cost? What are acillary reveues ad why are they a importat part of a hotel s overall strategy? What are some of the elemets to be sure are icluded i a group pricig strategy? What is a displacemet aalysis ad why is this importat to a hotel? What are the three commo elemets that are related to the measuremets of fuctio space? 120 The Foudatio of the Hospitality Sales & Marketig Associatio Iteratioal