Group revenue management: A model for evaluating group profitability

Although proprietary hotel revenue management systems may take group business into account, substantial research is not available on revenue management for groups. A series of formulas presented here shows how to calculate the expected contribution of a prospective group's offer. In particular, the decision on whether to accept a group's offer depends on the opportunity cost of transient business lost when the group's rooms are blocked. In the event that the group's offer falls short of covering that opportunity cost, the equations also indicate how much the group needs to offer to get the hotel to accept the business. Further equations show how to account for revenues from functions other than room purchases.