Contract NegotiationsNovember 27, 2018

Planners Can Bargain if They Know the Value of Their Business and Show Flexibility By
November 27, 2018

Contract Negotiations

Planners Can Bargain if They Know the Value of Their Business and Show Flexibility

 Negotiating with hotels and convention centers has never been a planner’s favorite activity. The task is even tougher nowadays, thanks to a seller’s market and high demand that allows venues to be more selective and less flexible due to increased options for securing group business.

To get the best deals, planners must raise their negotiating game by thinking like sales managers, knowing the value of their business and being more flexible with dates, rates, meeting space and other logistics.

However, negotiating acumen among planners ranges from seasoned, tough bargainers to those who accept first offers without seeking concessions. Lacking good bargaining skills can lead to even greater expenses for meetings and conventions.

While the seller’s market is most notable among hotels, convention centers are also driving harder bargains on contracts, called facility licenses. Negotiating with the centers is crucial because they are the heart of association meetings.

Convention Centers

Bargaining with convention centers can be tricky because they are typically managed and owned by municipalities and follow pricing guidelines with several goals in mind. Centers seek to earn revenue on every bit of meeting and exhibit space, boost ancillary spending by attendees and increase expenditures by groups on room blocks and other services citywide.

According to Jennifer Collins, CMP, president and CEO of Silver Spring, Maryland-based JDC Events, which plans meetings, conferences and trade shows, “Convention centers are often impacted by local municipalities in their operations and cost structure. This can add an additional layer in affordability and approval for meeting professionals, who are faced with having to do more with less. Centers have different fees and unique requirements in staffing, insurance, security and other areas not found in hotels. However, this does not mean that a center may not be in your best interest.”

“List all charges in the contract so there are no surprises later. Achieving this level of granularity can be tedious up front but can save a lot of headache and budget overages in the long run.”  — Christine Hilgert, CMP

It’s important to remember that convention centers and hotels have different sources of revenue and profit.

According to Terri Woodin, CMP, vice president of marketing and global meeting services for Meeting Site Resource, “Hotels make their money on guest rooms because, on average, 80 percent of the room rate is profit. Convention centers do not have rooms, so they must charge rental for every square foot to pay for the building. If you are in a city with unions, it can add up to 30 percent to overall costs. Keep in mind when working with centers that they have different requirements for what you can do and at what costs.”

Surprise Charges

Convention centers also negotiate contracts to earn revenue from a variety of ancillary costs such as parking, attendants, crowd control and security. Planners have long complained that convention centers have a reputation for nickel-and-diming planners for ancillary charges and undisclosed fees.

To avoid surprises, Woodin suggests the following: “Be sure that all fees are disclosed up front and ask what else could potentially be charged. Some CVBs and hotels have marketing budgets that can help offset rentals at city convention centers, so you need to ask about these promotions, says Woodin.”

Also, some hotels will often give part of the room rate back to offset costs.

In addition, says Woodin, centers may provide discounts during less busy periods — January, February, March, July and August. Large citywide conventions that destinations covet are most likely to get the biggest concessions.

Convention center contracts tend to be lengthy and confusing, so patiently read the fine print and ask questions, especially about costs that may not be included.

Ask that the agreement have a clause stating that you will not be responsible for any fees or surcharges not outlined in the contract.

Reach Out to CVBs

Christine Hilgert, CMP, senior vice president of meeting planning at Atlanta-based Meeting Expectations, an association and event management company, offers this advice for getting the lowest possible rates and ancillary charges from convention centers: “Work with CVBs to help the center and hotels see your business as a package and not two or more separate contracts or pieces of business. The CVB and/or hotel may be able to help offset center costs with hospitality contributions or destination incentives.”

In addition, Hilgert continues, “Discuss potential ancillary costs at the time of contracting. Also, request discounts on F&B (coffee and tea, prepackaged items based on consumption, customized menus, waiver of small group function fees), audio-visual, etc. List all charges in the contract so there are no surprises later. Achieving this level of granularity can be tedious up front but can save a lot of headache and budget overages in the long run.”

Lastly, keep this in mind. “Each convention center serves its own city in a different way. Some are loss leaders that exist to support local hotels, and some are the economic drivers to bring conventions to their city,” says Hilgert. “Each center is different just as each hotel is different.”

Strategies for Hotels

Negotiate strategically and know how hotels earn money on meetings. Hotels bargain based on room nights and F&B, the properties’ two highest profit centers. Sleeping rooms account for around 70 to 75 percent of profit, and F&B comprises about 25 to 30 percent. Some hotels may lower meeting space costs if F&B and/or sleeping rooms reach a certain dollar amount.

Planners, even those offering highly desired association citywides, shouldn’t give facilities added clout by revealing their budgets up front. Sales managers tend to use the numbers as a starting point for negotiations and offer standard rates or higher to meet their profit targets. However, sharing the budget with a trusted property that has provided value in the past may help negotiations. Even then, provide figures at the right time during bargaining to improve chances of getting the best rates.

Answer the question, “What is your budget?” strategically, especially if it comes early during negotiations. One possible response is, “We are still finalizing our budget.”

Woodin shares this strategy: “When a hotel asks for the room rate budget, I respond by saying the market drives the rates, and I don’t know what’s happening in your market with room compression due to citywides, compression within your hotel due to business on the books, how the pattern affects what you already have, the rooms-to-meeting space ratio and revenue management rates. I then ask for the best rates given these revenue management parameters.”

Woodin takes a different approach for groups receiving a per diem, which often includes associations.

“Then, by all means, that is driving where you can go and start the conversation that way,” says Woodin. “Otherwise, planners typically back into the rate-budget discussion based on where they need to be and what dates they need. If you are flexible, let the sales manager know your date and pattern of flexibility so they can shift you to the best rates available.”

Being aware of a hotel’s meeting space-to-rooms ratio may help reduce meeting space fees.

“Hotels have different ratios that are used to determine the appropriate amount of meeting space based on the number of guest rooms that will be needed,” says Collins. “Essentially, hotels want to avoid having a significant number of guest rooms with no meeting space to sell. So, if there is an equitable ratio, then this factor in conjunction with the amount of F&B you will bring to the property often will result in the waiver of at least some meeting space fees. However, it’s important to know the F&B minimum as each property will be different.”

History Helps

Showing a track record of meeting or exceeding room block commitments can be an effective bargaining tool because it shows reliability as a source of revenue and helps hotels better forecast room inventory.

According to Collins, “Planners can help venues understand the value of their business by providing three years of meeting history that includes meeting dates, the number of attendees, cities and hotels used, guest room pickup per night, room rates, meeting agendas and F&B details. The more transparent meeting professionals can be about history, the better it will help fuel negotiations.”

Also include spending on spas, restaurants, bars and onsite entertainment. Use strong meeting history as leverage to bolster weaker areas of an RFP.

Meeting history for F&B is crucial. “This is another area where it’s important to know your history,” says Collins. “If you have hosted a particular meeting or event previously, you should have real data on how much spend is realistic. This figure will be your negotiating starting point even though the property will have their own internal minimum.”

Collins recommends that planners who met at a hotel the previous year consider negotiating that year’s F&B pricing. She also advises planners to “work with the hotel to design menu offerings that fall within a certain price range or explore conference center venues that offer a complete meeting package, which is a daily packaged rate including such items as meeting room, select meal functions, breaks, select audio-visual, etc.”

Also consider designing menus based on a group’s budget. Focus on items that are less expensive and take less time to prepare. Include special dietary needs.

Another option: Research other groups that are meeting at the hotel at the same time and consider sharing menus, which allows meals to be ordered in bulk and saves money. Don’t commit to early and high F&B minimums, and try to provide guarantees on the last possible cutoff date. Always request a discount on menu pricing and service charges.

Attrition Alert

Negotiating favorable attrition rates is always thorny because penalties vary, and planners don’t control how many attendees book rooms in reserved blocks. Other factors include an event’s total value, the number of rooms reserved and meeting history.

Clauses for attrition typically mandate that a planner guarantees guests will fill a set percentage of rooms in a reserved block by a certain date or pay a fee for unbooked rooms. For example, a 15 percent attrition rate means that planner guarantees guests will book at least 85 percent of rooms in the block.

Knowing attendee booking history with room blocks, as well as non-block hotels is critical.
Collins explains: “For instance, do participants tend to book late or early? Is the event required or voluntary, etc.? These factors and others can influence how you approach attrition negotiations. For instance, if it’s a mandatory event, negotiating a lower attrition slippage of 10 percent six months out might be possible. But it most likely won’t work if you won’t know the number of participants until closer to the meeting date.”

Woodin suggests the following tactics for negotiating attrition rates.

“Cutoff dates are typically 30 days and, often, planners prefer 21 days,” says Woodin. “If you have strong history on attrition to back up why 21 days works best for both parties, then you can support why you need 21 days. If you have a strong history of room pick-up at 90 to 95 percent and you ask for 20 percent attrition rate to reduce your contract risk, then the hotel understands that you are sharing the risk and you are likely to pick up the difference, so they can manage around your block to accept others with hopes of selling out each night.”

Also consider negotiating waiver of attrition fees should the hotel sell out over the group’s dates.

“Many planners use 100 percent as the guide for instituting this clause,” says Collins. “However, perhaps you can consider taking the average of the hotel’s occupancy over a period of time, which could potentially reduce the rate under 100 percent.”

In addition, remember that hotels usually base attrition calculations on lost revenue, which is usually higher than lost profit. Negotiate loss based on lost profit, which is defined as gross revenue minus expenses.

Also ask that total room nights, not rooms per night, be the basis for attrition calculation. Finally, request that the property do a post-meeting audit to calculate the number of attendees who booked with hotels outside the room block. Use the figure to negotiate down attrition penalties.

The seller’s market can create a mismatch between planners, who negotiate periodically, and sales managers, who do it every day.

That’s why it’s crucial that planners be savvy enough to negotiate the best deals possible.

Negotiating Tips

Contact the local CVB because it usually has information about other meetings held at convention centers and hotels that will help demonstrate the value of your meeting.

If possible, provide a staffer or two to assist convention center employees with basic duties for a meeting in exchange for discounts.

Don’t give an ultimatum because it won’t work. Taking a hard line forces convention center and hotel salespeople to make a fast decision, which typically doesn’t favor planners.

Don’t yield to pressure to review and sign a contract in a short period of time.

Stick to the amount of time needed for you and others in your organization to review the offer and decide. If salespeople show no flexibility, then consider another property.

As a rule of thumb, don’t start negotiations with a property if the meeting cost is more than 20 percent higher than your budget. It’s unlikely that a property will drop its initial offer by enough to make a deal.

When securing a discount in one area, such as meeting space, make sure the property doesn’t overcompensate in another area, like food and beverage.

Don’t readily agree to the usual complimentary room ratio. Typically, the ratio is one free room to every 50 rooms booked but aim for something in the 1:40 range.

Research the rates of a handful of hotels and use the information at strategic times to mention that a competitor is charging less for a desired service.

It’s a seller’s market, making it more difficult for planners to find the dates they want at their desired properties because the demand for group business has been rising.

Hotel and convention salespeople are more willing to hold the line during negotiations. But planners still have some bargaining clout if they know the value of their business, believe that nothing is too small to negotiate and show flexibility at the appropriate time. AC&F

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