Today, revenue management has evolved to include forecasting, automated pricing, and distribution. But at its core, it’s still about yield management.
For small to mid-sized independent hotels, managing yield is particularly important because every booking counts. With limited inventory, the goal isn’t just to fill rooms – it’s to fill them profitably.
That means being selective about which bookings you accept. Nowhere is this more important than with group bookings, which can consume large chunks of your availability.
So, how do you know when to say “yes” to a group—and when to hold out for potentially more profitable transient guests?
The answer lies in revenue displacement analysis. But don’t worry, it’s not as complicated as it sounds.
Group or Transient? The Risks of Getting It Wrong
First, let’s consider the stakes at play. Groups can be a valuable part of your business mix, but they’re not always the golden ticket they appear to be. If you accept the wrong group at the wrong rate, you risk:
- Filling rooms that could be sold at higher rates to individual bookings
- Lowering your average daily rate (ADR)
- Creating occupancy gaps on shoulder nights (before or after the group stay)
On the flip side, turning away the right group could mean:
- Missing out on guaranteed revenue
- Leaving rooms empty during a slower period
- Falling short of your occupancy targets
Traditionally, hoteliers relied on gut feel and past experience to make these calls. But today, data is your best friend – and it often tells a different story than your instincts. That’s where revenue displacement analysis comes in.
To learn the ins and outs of group decisions, check out Group or Transient? Solving the Great Dilemma in Hotel Revenue Management.
What Is Hotel Revenue Displacement Analysis?
Revenue displacement analysis helps you determine whether a group booking will increase or reduce your total revenue. It compares the estimated revenue from the group against the revenue you’re likely to earn from individual bookings over the same dates.
If the group’s revenue is higher, great – you’re gaining. If it’s lower, you may be better off saying no or negotiating different terms.
Displacement analysis is especially important during high-demand periods when every room has the potential to sell at a premium. During low season, you may be able to take a group with minimal displacement risk.
How to Perform a Revenue Displacement Analysis: Step-by-Step
Here’s a simple approach, tailored to independent hoteliers. You’ll need input from your PMS, RMS or pricing automation tool, demand forecast, and group sales team.
Step 1: Estimate the Group Room Revenue
Start with:
- Number of rooms requested
- Proposed rate
- Length of stay
Example: A group requests 10 rooms for two nights at $150 per night
Group Room Revenue: 10 rooms x 2 nights x $150 = $3,000
Step 2: Estimate Displaced Revenue
What could you earn if you sold those rooms to transient guests?
Look at:
- Forecasted occupancy and ADR for the same dates
- Historical data from the same period last year
- Booking pace and current pickup
- Special events impacting demand
Example: Forecasted occupancy is 100% at an ADR of $195.
Displaced Revenue: 10 rooms x 2 nights x $195 = $3,900
Note: Accurate forecasting is crucial to making smart group decisions. To learn the ropes, check out our Guide to Hotel Forecasting.
Step 3: Estimate Ancillary Revenue
Would the group bring in extra spend from meetings, meals, or bar tabs?
Example: The group requests a welcome reception, two meeting days, and two lunches.
Ancillary Revenue = $2,500
Step 4: Calculate Displacement Cost
Now compare:
Group Total Revenue: $3,000 + $2,500 = $5,500
Displaced Revenue: $3,900
Displacement Cost: $3,900 – $5,500 = –$1,600
In this case, you would gain $1,600 by accepting the group. That’s a win. Note that if you based your decision on room revenue only, you might have made the wrong call.
Step 5: Factor in Additional Considerations
A basic displacement analysis provides the essential numbers to make a quick decision, but there are other factors that come into play, such as:
- Profitability: Are there higher labor or F&B costs tied to the group?
- Booking window: Do you have enough time to fill those rooms with high-rate bookings if you say no?
- Stay pattern: Does the group create gaps in your occupancy before or after?
- Room types: Will accepting the group leave you with hard-to-sell premium rooms?
- Group wash: Is the group likely to drop rooms closer to arrival?
Pro tip: If the analysis shows a loss, rather than declining the group, try negotiating a better rate, offering alternative dates, or adding a group meal to improve overall value.
RoomPriceGenie’s Group Booking Price Calculator: Coming Soon!
If all this math makes your head hurt, we get it. To make things easier, the RoomPriceGenie team has developed the Group Booking Price Calculator – soon available to our customers.
Here’s how it works:
- Enter the group details (dates, rooms, rate).
- Let RoomPriceGenie calculate the best rate based on your hotel’s data, historical trends, and forecasted demand.
- Receive a recommended group rate – data-driven and optimized.
- Review and finalize your offer with confidence.
The Group Booking Price Calculator is designed to make it simpler and easier for hotels to yield maximum revenue from room inventory.
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