Every hotel has the same problems. When do I accept a group request or group booking and when do I reject it? Does it make sense to accept every request directly? We’ll give you all the information you need to assess whether a group booking is worth your while. And we will show you a displacement analysis in detail.

What is a displacement analysis?

Displacement analysis is nothing but a preliminary analysis for a group booking or group travel. The analysis tries to calculate whether a group trip is economically viable. That is, what you lose or gain on the group trip. Overall,  not every business with a large booking quantity is profitable.
Here it is important to look more closely and not accept every booking.

What do I have to consider for a group booking/group request?

Important in an analysis are the correct plan figures of the bookings. Only if you know what can really arrive, a good displacement analysis can be done. The alternative demand should be estimated, who would stay at the hotel without the group booking. Based on the correct forecast, a displacement analysis can be performed. Here happyhotel can support you, because our goal is to predict the demand for the future.

Calculation example of a displacement analysis or group booking/group request

We have created an example of a displacement analysis for you. You can use it to calculate whether a group booking is worthwhile for you.
Starting point of the calculation:

calculation start point

We consider a group booking with three overnight stays. The hotel has a total of 100 rooms and the group wants to book 30 rooms per night. These are the results of our forecast:

On day 1 we expect 70 rooms with individual guests, on day 2 95 rooms and on day 3 85 rooms.

The average rate is 120,00 € per room and the variable costs are 50,00 € per room. Thus, a contribution margin of 70.00 € is generated. The group will generate additional income from food and beverages in the amount of 800,00 € (assumption).
The group request gets a price of 60 € per room.

Procedure of calculation:

Day 1: According to the analysis, we have an occupancy of 70 rooms, without the group booking. If we accept the group booking, we have an occupancy of 75 rooms. With the capacity of 100 rooms, we don’t have to make any cancellations.
Day 2: On this day, according to the forecast, we already have 95 rooms occupied. Assuming the group, we need a total of 125 rooms. But there are 25 rooms missing, so we would have to cancel individual guests or there is a displacement here.
Day 3: According to the forecast, 85 rooms will be sold. With the group booking we have a bottleneck again. We have to cancel 15 rooms and also here there is a displacement of 15 individual guests.

If we accept the group booking, we will have to cancel a total of 40 room bookings.
As a result, we have the following calculation:
Individual guests would pay an average of 120.00 €.  You will have to cancel 40 rooms.

group booking

Individual guests (ADR) x 40 cancelled rooms = 5,050 € (opportunity cost), assuming the group.

Now the 5,050 € minus our revenue must be divided by the group booking:

turnover group inquiry

Group booking turnover At first glance, we should make more profit here if we assume the group booking.

loss group booking

In our example we should cancel the group, otherwise we will lose 950 €. The example shows that it is not necessary to accept every booking. Change the price of the group booking from 60 € to at least 72 € per room.

Excel template

Here you can view and download the Google Sheet.

Useful videos from experienced revenue managers can be found here:

Conclusion

To sum up, it is important to make sure to use the right plan numbers for the analysis. Likewise, you need to know the price floor. As a result of this, you can make a decision if you can accept a group request. You know at what price you can accept the group booking.
Very few hotels tell large groups the correct calculated price because they think in the short term. Here it needs a lot of trust in the data. We at happyhotel trust in data and leave nothing to pure chance.

You should not do without a displacement analysis, especially in times when demand is particularly high. This is true for every hotel. Analyze each request to give the group a price that is also profitable for the hotel.