What to know about cancellation and attrition?

As a sales manager, getting a signed agreement is probably one of the best feelings in the world.  On the other hand, as a sales manager, getting a cancellation, right before month end, quarter end, or year end, depending how you are evaluated, is the worst feeling in the world.  Now don’t get me wrong, we get it, things happen, plans change, and cancellations are inevitable, but let’s make sure we know the basics to avoid any confusion down the road.

Let’s start by defining what cancellation and attrition is.  Put yourself in the shoes of a meeting planner: you are booking a sales meeting at a hotel and you need 50 rooms for 2 nights for a total of 100 room nights.  You also require 1,000 square feet of meeting space for the one day meeting.  The guest room rate is $289, the meeting space has a room rental of $500, and a food and beverage minimum of $2,000.  Therefore, the total value of the program is $31,400.00. ($289 x 100 room nights = $28,900 + room rental $500 + food and beverage minimum $2,000).  The contract carries 90% cancellation and 90% daily attrition.

Situation A, Cancellation: Two months before your event is to take place, your boss tells you that he needs you to cancel the sales meeting. Since the contract was written with a 90% cancellation clause, your company owes the hotel $28,260.00 as a
cancellation penalty for breaching the agreed upon contract.

Situation B, Attrition:  Your cutoff date is approaching and the event manager from the hotel lets you know that you have only picked up 35 rooms per night.  It turns out many of your sale managers are attending a nationwide sales summit that was scheduled for the same week as your meeting.  You tell the hotel event manager that your group will not need any additional rooms past the 35 rooms booked; enter the attrition clause.  Since the contract was written with 90% daily attrition, your company is responsible for actualizing 45 rooms per night (50 room x 90%).  Since your group has only picked up 35 rooms per night, you are responsible for the difference between 45 and 35, or 10 rooms per night, 20 room nights total.  The attrition dollar amount is figured on the contracted guest room rate, so in this case, $289.  $289 x 20 room nights, means your company owes the hotel $5,780.00 as an attrition penalty for not fulfilling your end of the contract. 

Just one important thing to note, taxes will be charged on your cancellation and attrition fees. It isn’t up to the hotel, the law makes hotels pay it.

From the sales managers prospective, they never like someone to pay for guest rooms that go unused.  On the flip side, they do have to report up as to why anticipated revenue has changed.  If a contract is signed 9 months or a year in advance, the hotel is turning away other potential groups and making other business decisions based upon the anticipated revenue your group contracted to bring in.

We all know things happen and cancellation and attrition is inevitable.  What can we do to make bad situation into a win-win situation?

As the Planner

• Keep your sales manager in the loop. If you have even the smallest inkling that your group might cancel, let your sales manager know so they can prepare the hotel team.
• When breaking the news to your sales manager, offer a solution instead of just saying your group is cancelling and you don’t want to pay the cancellation fee.

As the Hotelier

• Reduce the cancellation fee if the planner is willing to sign a new agreement for a future booking.
• Offer payment plans to ease the financial burden to planners.
• Take a look at the total hotel; if the hotel is able to recoup or rebook a new group in the place of the cancelling group, maybe look at reducing the penalty.

“Life isn’t always perfect.  Life isn’t always easy.  Life doesn’t always make sense, but that’s the beauty of life.”