Everyone agreed the convention business was high value, nobody could say what it earned.

Carlos found Dr. Lin alone in the boardroom the next morning. The dashboard was dark, and she was seated beside the chair Diane had occupied during Monday’s meeting, reviewing the small notebook Carlos had watched her close the day before.

He stopped near the door. “What did you write yesterday?” Dr. Lin looked up, then turned the notebook around.

HIGH VALUE = ?

“That’s all?” Carlos asked.

“It was the only phrase no one defined.”

She closed the notebook and placed it in her briefcase. Carlos returned to his office and tried to supply the missing definition himself. High-value groups generated strong room revenue. They produced banquet business, filled soft periods and helped the hotel gain market share. Each answer sounded reasonable, but every one described revenue. None answered the question Diane had asked.

Victor was already at his desk when Carlos arrived. The controller had spread several reports across the small conference table in his office, along with the financial packet from Monday’s meeting. Carlos closed the door behind him.

“I want to know how much we made from the convention business that added the 2,100 room nights.”

“I can tell you the room revenue,” Victor said. “I can tell you the banquet revenue and what happened to departmental profit. But I can’t give you a clean profit-and-loss statement for those groups.”

“Why not?”

“Because that isn’t how the accounting system is organized.” Rooms expenses were reported in Rooms, banquet expenses in Food and Beverage, and marketing expenses in Sales and Marketing. Utilities, maintenance and administrative costs appeared elsewhere. Some expenses could be traced to a particular group, while others could not.

“Sales called them high-value groups,” Carlos said.

“They generated a lot of revenue.”

“That isn’t the same thing?”

“It might be.” Victor looked down at the report. “But that isn’t what you asked me.”

They began with the figures everyone knew. Convention business had added 2,100 room nights during weeks that had historically been difficult to fill. Group ADR had increased from $185 to $190, and banquet revenue had risen by $250,000, reaching nearly $800,000 for the quarter. On the commercial dashboard, the business looked exceptional.

Victor opened another report. Rooms departmental profit had increased, although its margin had declined. Food and Beverage was more troubling: revenue had increased by $250,000, but departmental profit had fallen by $68,100.

“How does revenue go up by $250,000 while profit goes down?” Carlos asked.

“Some of the difference came from wage inflation, some from delivering the banquet business and some from staffing the outlets for a fuller hotel when restaurant demand didn’t increase as expected.”

“How much of it belonged to the groups?”

Victor looked down at the report. “I can’t tell you.”

“That’s the problem.”

“That is the problem.”

Carlos took the service elevator down two floors and found Sofia Alvarez, the hotel’s director of food and beverage, reviewing event orders with one of her managers. Function sheets covered the banquet-office table, with changes marked in several colors and squeezed into almost every available margin.

Sofia looked at the reports in Carlos’s hand. “That looks ominous.”

“I’m trying to understand our high-value convention business.”

“High-value according to whom?”

Carlos smiled. “You’re the second person to ask me that.”

“Maybe someone should answer it.”

Once her manager had left, Sofia began gathering the records she thought might help. The banquet system showed revenue, food costs and scheduled labor. Agency invoices were stored elsewhere, while linen, equipment rentals and audiovisual support appeared in another report. None of the documents had been designed to answer Carlos’s question, so they began constructing an estimate together.

The additional banquet revenue had been $250,000. From the available reports, Sofia estimated that approximately $85,000 had gone toward food and beverage costs and another $70,000 toward banquet service labor. She found $35,000 in agency-labor invoices and approximately $20,000 in linen, rentals and audiovisual support.

Carlos added the figures twice before looking up. “So we kept about $40,000.”

“Before shared costs,” Sofia said. “And these are estimates assembled from several systems.”

Neither spoke for a moment. The $40,000 was not insignificant, but it looked very different from the additional $250,000 in banquet revenue the commercial team had celebrated, and smaller still beside the nearly $800,000 displayed on the dashboard.

Sofia pulled up the outlet schedules. The hotel had staffed its restaurants and bars for higher occupancy because more guests in the hotel should have meant more guests in the outlets. Instead, many convention attendees had eaten at scheduled functions, gone out with colleagues or returned to their rooms after long meeting days. Outlet revenue had remained essentially flat, while staffing the outlets for the fuller hotel had cost approximately $55,000 more than the previous year.

“How much of the additional staffing was driven by the groups?” Carlos asked.

“We can’t separate it that cleanly,” Sofia said. “And I wouldn’t blame it entirely on them. We assumed occupied rooms would translate into restaurant covers, and the assumption was wrong. Wage inflation added another $53,100 across the department.”

“Do you think we should have rejected the business?” Carlos asked.

“No. Those were weak weeks, the room revenue mattered, and much of the hotel’s labor was already in place. The groups might have been exactly the right business to accept.”

“Then what are we trying to find out?”

“Whether they were as valuable as everyone assumed.”

Sofia pulled one of the event orders from the pile. The group had negotiated discounted meeting-room rental, complimentary guestrooms, upgraded amenities for senior attendees and an attrition allowance. Each concession had been reasonable when considered individually, but together they altered the economics of the account.

“Sales needed those concessions to win the group,” Carlos said.

“I’m not saying they made bad decisions. Their job was to win the business. But did anyone show them what each promise would cost the departments responsible for delivering it?”

Carlos thought about Monday’s meeting. Sales had discussed group pace, Revenue Management had discussed occupancy, ADR and RevPAR, and Marketing had celebrated the rise in direct bookings.

Operations had not been in the room.

Once the commercial plan was set, operations knew what it had to deliver. The arrangement had always seemed efficient. Now Carlos wondered whether the hotel had separated the people deciding which business to accept from the people who understood what that business required.

“What would you have done differently?” Carlos asked.

Sofia considered the question. “Perhaps nothing. Or perhaps we would have changed the banquet menu, negotiated different concessions, scheduled the meeting-room turns differently or priced the compressed arrival dates more carefully. But we would have needed that conversation before the contracts were signed.”

Over the next several days, Carlos tried to complete the picture. Housekeeping could identify agency invoices and the dates on which compressed arrivals and departures had required extra room attendants, but its payroll system recorded rooms cleaned rather than whether the occupants were group or transient guests.

Sales could show Carlos every concession written into the contracts, but it could not determine what the upgraded amenities, repeated meeting-room changes and other operational promises had ultimately cost.

The necessary information existed, but it did not exist in one place, in one language or under one person’s definition of value.

By Friday afternoon, Carlos and Victor had compiled a preliminary list of everything the convention business had touched: room and banquet revenue, acquisition costs, concessions, complimentary rooms, food costs, regular and agency labor, supplies, meeting-space resets, guest recovery and outlet staffing. The list was longer than Carlos had expected and contained more estimates and blank spaces than he liked.

At the top of the page, Victor had written High-Value Groups. Carlos drew a line through the words and replaced them with Convention Business.

“You don’t think they were high-value?” Victor asked.

“I think we’ve been using the conclusion as the label.”

Carlos found Dr. Lin in the lobby late that afternoon and showed her the page. She read the list once, then looked at the title Carlos had crossed out. “Who made the bad decision?”

“I’m not sure anyone did.”

Dr. Lin handed the page back to him. “Then how did a series of reasonable decisions produce a result no one can defend?”

She was gone before he could answer. Carlos stayed where he was, reading the list again, looking for the line where the decision had been made.

When the commercial team gathered the following Monday, Carlos asked Sofia to join them. She took the previously empty chair facing the dashboard and placed a folder of event orders and staffing reports on the table.

The revenue manager began with the demand forecast, after which Sales described another promising group opportunity for a traditionally soft period. The projected room and banquet revenue looked strong, although the client was requesting discounted meeting-room rental, four complimentary guestrooms, upgraded amenities for its executives and two additional room resets.

When the sales director finished, Carlos looked around the table. “Is this good business?”

“It fills a soft period and puts us ahead of the quarterly group target,” the sales director said.

The revenue manager pointed to the forecast. “It adds six points of occupancy on our weakest dates and improves RevPAR.”

“The banquet revenue is strong,” Sofia said. “But I still don’t know what we have to do to earn it.”

Three answers. Each one correct within the boundaries of a department. None of them answered the question for the hotel.

Carlos looked from one face to another. “What would we need to know before we decide whether this is high-value business?”

Sofia opened her folder. “What exactly have we promised them?”

The sales director turned back to the proposal and read through the concessions. When he finished, Sofia asked, “And what will those promises cost us?”

The sales director looked toward Victor. Victor turned to the revenue manager, who glanced at the figures still displayed on the dashboard. Sofia waited, her folder open in front of her.

Sherri Kimes is a globally recognized expert in revenue management, pricing, and capacity strategy for hospitality and service businesses.

Sheryl E. Kimes is an Emeritus Professor of Operations Management at the Cornell University School of Hotel Administration and a globally recognized expert in revenue management, pricing, and capacity strategy.

With more than 35 years of experience, she has published over 100 articles and book chapters and has received multiple lifetime achievement and industry relevance awards for her research and teaching. She currently publishes her applied research and commentary through Revenue Mosaic, a practitioner-focused newsletter on pricing and revenue strategy.

Professor Kimes advises organizations worldwide, including SevenRooms, Ticketmaster, Hyatt International, the Panama Canal, Walt Disney World Resorts, InterContinental Hotels Group, and Marina Bay Sands.

sherrikimes.com