Revenue Management for Hotel Function Rooms

Industry Overview

Hotel Function Rooms are rooms that can be served in different functions such as meetings, banquets, exhibitions, storage rooms etc. Hotels can sell function rooms to in-house guests, non in-house guests or companies. To maximize the revenue per available square feet for each function room, hotels sometimes should not only consider the revenue generated from the function room but also the additional revenue along with it such as room revenue, F&B revenue.

The space of the function room are physical areas that can be used for the particular event.

The space of function rooms can be priced in different ways to the customers, the most common ones are to charge base on room rental or base on the number of attendance. However, no matter what way to charge, hotels should always make sure that the gross revenue generated from each event at least meets the minimum revenue requirement for the function room it uses.

Function Rooms mostly are used from early morning until late night (Breakfast, morning meeting, lunch, afternoon meeting, dinner etc). It can also be used for 24 hours holding if they are served as storage room or rooms for overnight set-up.

The price of the Function rooms varies depending on the seasonality. High seasons are when lots of meetings or events happen in the market. The hotel should charge high price during the high season and low price in the shoulder season. For example, Hotels in Boston should charge experience prices for their function rooms in the fall since there are many people coming for meetings that time, while lowering the price in February since Boston is very quiet in the winter for the cold.

Space

The space of function room can be defined implicit since it can be changed in different setups such as, classroom, theater, U-shape, round table etc. It depends on the event purpose. Different set up determine the maximum attendance that can fit in the room since some set ups take more space than the other. For example, classroom style takes space than theater style.

There are different types of function room with different sizes and serve with different purpose:

Type of Rooms Size Functions
Marble Hall Large large size events such as weddings, exhibitions and conferences
Regular Function Room Medium medium size events such as seminars, trainings
Hospitality Room Small birthday party or cocktail receptions
Small Meeting Room Small small size private meetings or board meetings.

Beside revenue from room rental or banquet revenue. Function rooms also can generate other additional revenue:

Hotel Rooms: Meeting planners often book hotel rooms for their customers who attend the events. Therefore, hotel can generate much more room revenue generated from it. If a hotel has a very good function room, it can attract many large events that along with many room revenue.

AV Facilities: During the event, hotel can generate extra revenue by renting additional audio visual equipments such as microphones, LCD projectors portable screen etc.

Flowers: The revenue from the flowers can also not be neglected. Large events requires many flowers decoration. Most of the company like to book the flowers from the hotel. The most common ones are table flowers or flowers on the podium.

Commissions from Vendor: Hotels can recommend its preferred outside vendors to meeting planners so that they can charge the commission fee from the vendors.  Wedding, set-up, or musical companies are very common vendors of the hotel for function space.

Time

The space of function room mostly can be defined explicit since the time reserved for the particular event is confirmed with the meeting planner in advance and clarified in the contract upon the confirmation. However, sometimes it can be explicit if the meeting is postponed for some unexpected reasons. To maintain the service quality, hotels usually have challenges to ask their customers to leave immediately. Therefore, to avoid that happens, three days before the event, hotels should double confirmed the final meeting schedules again with the meeting planners and inform them in advance to be responsible for controlling the time during the meetings.

Function Rooms can be sold by hours, half day, full day, overnight charges or 24 hours holding. For small meeting rooms the hotel usually can rent them by hours. Since small meetings do not usually have complicated set ups and last very long. However, large function rooms with large set-ups have to be rent in a way of half day, full day. For example, if the customer’s meeting is from 9:00am to 10:00am, even if it is only 1 hour meeting, but it has to be charged by half day. This is because it takes hotel sometime to tear down the set up for the last meeting and re-set up the room for the next meeting depending on the complication level of the set up. For some large events with complicated, they may need to hold the function room overnight to set up, therefore an overnight fee or 24 hours holding price may be applied. To manage the function space well, it is very important for hotels to take set up and tear down time into considerations before they confirm with the customers.

Price

The physical rate fences hotel usually use for function rooms are as following:

Size and shape

The larger the function room it is, the more expensive it will be. Because larger function room has more utilized space. The shape of the function room is also very important. For example, function rooms that are narrow or not squared are usually cheaper since the utilization of the space are relative low. For example, the Boardroom of Le’Merdian Hotel in Shanghai has a triangle shape, even if it has large space, the real space for utilization is not high, therefore it is hard for them to charge a higher price since they are not favorable by meeting planners

Location

Function rooms with visible front are usually more expensive since it can be recognized by customers easier.

Condition

The newer the function room is, the more expensive it is. The height of the ceiling is also very important. A function room with a higher ceiling can be charged much more than the one with the lower ceiling. For large event ceiling is very important element for meeting planners to consider since a higher ceiling allows them to set up a higher background board or special lights.

Sunlight and view

Function rooms with sunlight and good view can be charged more expensive.


The non-physical rate fences hotel usually use for function rooms are as following:

Time of use:

For business hotel, it is very common to offer discount rate if the company want to reserve the meeting on the low season. For example, business hotel in large city usually offer discount on weekend meetings. Discount is also a good strategy to shift some of demand from high period to low period.

Revenue

The more revenue the customer has reserved for his function room, the more discount will be offered. For example, if the meeting planner decide to have two full day meetings with 200 hotel rooms, it is very likely that the hotel will offer more discount for function space

Cancellation Policy:

The earlier the meeting planner want to cancel the meeting, the less penalty the will be charged. Because if the meeting planner cancels the function room early enough, the company still has the opportunity to sell it to other customers.

Priority right for government

Many hotels offer government rate. Especially for some Asian countries, government bookings can have cheaper rates than normal customers.

********************************************************************

The post are written based on the writer’s work experience and original understanding about the industry.

9 thoughts on “Revenue Management for Hotel Function Rooms

  1. Can you think of any other non-physical rate fences? Perhaps type of client? They might have lower rates for non-profit organizations. Also, prices might vary by day of week. For example, meeting spaces might not be used that frequently on weekends.

    The turnover time is just like with spas and theaters–can you think of ways that hotels can reduce this amount of time?

    And, how would you compare dedicated meeting/convention centers to hotel function space? Are there similar issues or is it quite different.

    Very interesting.

  2. Non physical fence- As I have mentioned hotel sometimes will offer lower rate for government organizations or free event for non-profit organizations or discount to some famous or big events in the purpose of reputation management. For example, one of the hotel I have worked, they offer a very low rate for HSBC Golf Championship in order to advertise the hotel as a sponsor of the event.

    Turnover time: turnover time management is very important. One of the way I have mentioned in the article to reduce the turnover time is to make sure that the catering sales team can think of in the operation stand of point when they sell the event. For example, if the client wants to have lunch with round table set up, the catering should confirm with them with the function room with the similar set up in dinner or breakfast time so that the banquet team do not need to re-set up the room completely.

    Different convention center are different, some convention center has only set up but no food & beverage to provide, company has to pay additional money for other vendor for outside catering. The major difference is when selling the convention center, the goal is to maximize the function room revenue, while the goal for hotel is to maximize the hotel total revenue, which means, function room should be always sold in the consideration of hotel room revenue as well, and this increase the risk and complication for revenue management.

  3. Since time is defined explicitly, what are some examples of implicit timing? Maybe pricing/selling by event type such as weddings, business presentation. That way, you can bundle prepackaged things like flowers for weddings and projectors for business meetings.

  4. Thank you for the suggestion.
    Time:
    As I have mentioned, time in most of the time is explicit. However, sometimes it can be implicit if the meeting is postponed for some unexpected reasons. To maintain the service quality, hotels usually have challenges to ask their customers to leave immediately on the meeting day. Therefore, to avoid that happens, it is very important for catering managers to coordinate the communication between hotel operations and customers be forehead.
    Package:
    Hotels do like to include the basic projectors or flowers decorations to the package, however, for complicated flower arrangements or projectors, hotels usually charge customers out of the package rate since it can be a large amount of revenue.

  5. What are the other WOW factors that a hotel can offer to their client in terms of function room bookings? aside from audio and technical equipment, what else can they offer differently which not most of the hotels are still doing?

  6. Is there data anywhere that estimates the topline revnue generated for these hotel function spaces? Or a % of the hotel industry revenue that accounts for function space?

Leave a Reply

Your email address will not be published. Required fields are marked *