What you absolutely need to know about hotel attrition

Well, quite a bit - attrition for hoteliers is somewhat of a necessary evil. One that involves protecting your interests by acting strategically and understanding the market you operate in.

But what is it, how does it come about and, most importantly, how can it be managed to safeguard your room revenue without repelling guests?

These are the crucial questions we answer in this blog.

What does ‘hotel attrition’ mean?

Attrition is the reduction in the number of reserved rooms or services from what was initially contracted.

It’s commonly used in the context of bookings at group rates, where a group – often a ‘SMERF’ (Social, Military, Educational, Religious, and Fraternal groups) – guarantees a certain number of rooms but ultimately doesn't use them all.

Hotels often set a minimum number of rooms the group must book and, if this number isn’t met, the group could face attrition charges if such a clause is included in their contract.

Room blocks are central to the concept of attrition; they refer to the sets of rooms typically reserved for events, conferences, group stays and the like. When a group commits to a room block, the hotel allocates a certain number of rooms for them at a negotiated rate. Room blocks are a key part of managing group stays but must be carefully planned to avoid attrition penalties.

Hotels charge attrition fees to offset the revenue they lose when a group books fewer rooms than expected, which prevents the hotel from selling those rooms to other guests. Attrition rates protect the hotel's room revenue while encouraging groups to make accurate projections.

Attrition penalties can significantly impact the budget of those making group bookings if they fail to meet contractual commitments. This is why hoteliers need to deploy them with caution, to avoid dissuading potential clients.

3 Types of attrition to know

Attrition clauses always seek to protect a hotel’s revenue, but exactly how do they do this?

Which metric you focus on varies, with total revenue, total hotel occupancy and occupancy at a more granular level being the most common factors in contention.

Let’s take a closer look at each type.

1. Revenue attrition

In revenue-based attrition clauses, you calculate expected revenue based on the hotel room block contracted. The contract typically stipulates that the group must meet a minimum revenue threshold, often allowing 15% attrition, meaning 85% of the expected revenue must be met.

This clause protects you by ensuring a certain level of income, even if not all rooms are picked up. For event organizers, this means careful management of guest room releases, as falling short of the revenue target can lead to financial penalties.

Strategically releasing lower-rate rooms can help minimize the risk of not meeting the minimum revenue requirement, but the contract requires the booking party to manage this closely to avoid penalties.

2. Cumulative attrition

With a cumulative attrition clause, the contract focuses on the total number of room nights over the duration of the event. Hotels often allow a 20% attrition allowance, meaning 80% of the total room block must be filled, protecting you from large revenue losses across the event period.

For example, with a 300-room night block, the contract would allow up to 60 rooms to be dropped without penalty.

This clause ensures you maintain overall occupancy levels while giving some flexibility to those engaged in event planning.

Planners should also keep track of their cumulative pick-up and negotiate for credit on pre- and post-event bookings to help meet minimum requirements and avoid penalties.

3. Per-night attrition

In a per-night attrition clause, room pick-up is calculated on a nightly basis, with an attrition rate often set around 20%. This means if 40 rooms are blocked per night, the group must book at least 32 rooms per night to avoid penalties.

This clause ensures you are protected nightly, maintaining steady occupancy levels. For the responsible party, this contract can be more restrictive because it requires consistent room pick-up each night, rather than balancing the overall event.

Some hotels offer clauses that waive penalties if the property reaches a high occupancy level, such as 90-95%. Verifying this typically requires the booking party to request an occupancy report or audit to confirm the hotel's actual occupancy during their stay.

Other types of attrition

Though less common, there are several other types of attrition worth noting, all of which can help you negotiate more favorable terms depending on the size, scope and nature of the event, including:

• Tiered Attrition – This is a more flexible approach, where you and the group agree to different levels of allowable attrition based on how far in advance hotel rooms are released. For example, if rooms are released 90 days before the event, a higher attrition allowance may apply (e.g., 25%).

• Performance-based attrition – In some hotel contracts, hotels may link attrition penalties to overall event performance, such as total revenue generated from all aspects of the event (e.g., room bookings, F&B, and ancillary services). If the group brings in significant business to your hotel in other areas, you may be more lenient on room block attrition.

• Food and Beverage (F&B) Attrition – In addition to room blocks, hotels often include F&B minimums in their hotel contracts for events like conferences or weddings. If the group fails to meet the contracted minimum F&B spend, they may be liable for penalties similar to room block attrition clauses.

How attrition impacts revenue management

Attrition directly affects various aspects of hotel management, especially revenue. When a group fails to meet its contracted room block, resulting in unused rooms, it can create unexpected vacancies and impact your ability to maximize revenue from both hotel rooms and other services such as catering.

These shortfalls can disrupt a hotel’s revenue management strategy since unfilled rooms or unspent budgets could have been sold to other guests at market rates, leading to potential lost profits.

Attrition clauses play a crucial role in protecting a hotel’s revenue. By including them in group contracts, you can ensure that you’re compensated even if the group falls short of its agreed bookings or spend.

This guarantees a minimum level of income, helping you safeguard your financial performance. From a revenue management perspective, these clauses are crucial for maintaining profitability and stabilizing cash flow during group events.

A healthy attrition rate for hotels is typically in the 10 to 20% range, depending on your policies and the size of the event. This balance allows for some flexibility for event organizers while still ensuring you minimize your financial risk. Negotiating a fair attrition rate is key to aligning the interests of both parties while maintaining a profitable operation.

Best practices for managing hotel attrition

So what can you do to better manage attrition at your hotel? In addition to the advice you can infer from the above, here are our top three tips:

Write a fair attrition clause

When writing an attrition clause, clearly define the percentage of the block that can be released without penalty and set deadlines for reducing group room numbers (see below).

Ensure the clause outlines the penalties for failing to meet the required minimum, including financial charges based on the shortfall. Flexibility in allowing reductions closer to the event, while protecting the hotel's revenue, can help maintain good client relationships.

The wording of the clause is crucial as it dictates how strictly you can enforce it. Ambiguous language can lead to disputes, so it's important to be specific about the timelines, attrition percentages and penalties.

Create an attrition schedule

Dovetailing with the above, an attrition schedule is a predefined timeline included in contracts that outlines how much of the room block or event services can be reduced without penalties as the event date approaches.

It specifies deadlines for releasing a certain percentage of rooms or services while still meeting the attrition allowance. For example, it might allow for a 10% reduction 90 days out, and a 5% reduction 30 days out.

Such a schedule helps both the hotel and the event organizer manage expectations and minimize financial losses.

To create one, follow these steps and implement it after receiving internal approval:

• Determine the total room block – Identify the total number of rooms reserved for the group.

• Set deadlines – Establish key dates leading up to the event when room reductions can be made without penalties. Cut-off date intervals might be 90, 60, and 30 days in advance.

• Assign percentage reductions – For each deadline, specify what percentage of the total block can be reduced. For example, 10% reduction at 90 days, 5% at 60, and none within the last 30.

• Include penalties – Clarify any financial penalties or fees that apply if reductions exceed the allowed percentages.

Be prepared to negotiate

It’s human nature to try to negotiate, so don’t expect travel planners to be any different – indeed, contract negotiation should be encouraged as it keeps the dialogue going.

Your customers will want as good a deal as possible, and will be emboldened by the knowledge that many top-ranking results for queries relating to attrition advise them to negotiate.

So embrace this. Our advice would be to offer some limited flexibility on any of the items in the list above.

Ultimately, if the numbers you settle on still leave you with healthy margins and don’t damage your reputation by creating the impression that you’re a pushover and that your rooms aren’t worth much, it’s worth meeting the customer somewhere in the middle.

Learn how to enhance hotel performance and boost revenue

Of course, there’s more to revenue and operations management than dealing with attrition. There’s more, in fact, just in the narrow field of group bookings.

But the themes we discuss above overlap with so many other areas of hoteliership, ones that we provide reams of material on at Lighthouse, all with the aim of helping you maximize hotel performance.

Resources include glossaries for revenue managers, content on forecasting and predictive demand intelligence. Get in touch with our team here, to learn more about how Lighthouse helps hoteliers fulfill their revenue management potential.