Displacement cost refers to the revenue potential lost, or displaced, to the enterprise incurred by accepting one piece of business over a competing opportunity. When a hotel accepts a group, it may have to refuse some volume of non-group business as a result. The revenue from that non-group business is therefore displaced, but the question is whether the accepted revnenue is greater than the displaced revenue.
Group Value
Number of rooms * (ADR – Room Cost) + additional revenue – related expenses
Displacement Cost
Number of rooms displaced * (ADR – Room Cost) + additional revenue – related expenses
