Local negotiated rate contracts, or simply “LNR” contracts, is a term used in hospitality and is a foundation when it comes to a hotel’s sales strategy. The world of hospitality comes with its own set of vocabulary and jargon so we’ll break down what exactly an LNR is, and how the LNR contracts are an integral part of a successful hotel sales strategy.
Definition of LNR in hospitality
LNR stands for located negotiated rate which describes an agreement between a hotel with a corporate group or organization that is interested in more competitive rates for rooms, meeting and event spaces over a period of time. The negotiated rate is typically made flexible between companies and organizations with no fixed permanent rate. These local negotiated rates are commonly not offered to the public (ie: transient business) who are booking vacations or regular hotel stays. LNR contracts offer a lower-than-average rate to motivate companies and organizations to continuously stay at a particular hotel, year after year.
How does it affect a hotel’s sales strategy?
Corporate travel is a trillion dollar industry – the numbers don’t lie. The Global Business Travel Association found that $1.33 trillion was spent on business travel worldwide in 2017 and is expected to grow to $1.7 trillion by 2022. In our modern age, we have the help of online meetings and virtual conferences but in-person meetings are still in high demand and business travel is not going anywhere any time soon. Skift found that two thirds of business travellers believe that it is difficult to build a working relationship through video calls and believe that business travel is an essential component of their jobs.
These staggering numbers with all this travel, means a demand for accommodation. Incorporating LNR contracts into your hotel sales strategy will directly impact your bottom line in a very positive way.
In the case of the Hilton chain, one of their properties underwent a facelift. During this process, they renegotiated all LNR contracts and signed on $1 million in groups and new business. This new rate strategy was catered and implemented to capitalize on their unique location. In the first three years following, RevPAR (revenue per available room) grew 40% and GOP (gross operating profit) grew an astounding 57%. RevPAR is a metric used in hospitality that indicates a hotel’s performance. It is calculated by multiplying the ADR (average daily rate) by its occupancy rate.
Key benefits of LNR contracts
It’s easy to see that if you aren’t doubling down on LNR contracts, then you’re a massive step behind. Chances are, your local competitors already have LNR business and are constantly developing that side of their sales strategy so nowadays, it’s a means of staying competitive. Negotiating with local businesses will ensure that they are doing business with you and nobody else. LNR contracts secure a minimum amount of business to offset unpredictable transient business, but you also benefit from being able to forecast revenue and negotiate even more lucrative contracts in the future at the right rate.
We touched on forecasting above but we’ll say it again. Having predictable revenue is so important because these are nights you can count on versus the volatile nature of transient business. Knowing your set amount of LNR business planned for the entire year in advance will allow you to forecast any peak traveling months you may be expecting (holidays, local events and festivals etc) and will be helpful to understand your demand and supply relationship. You’ll be able to effectively allocate that marketing budget and knowing ahead of time what your availability will be for those peak times will help your hotel drive demand up and increase the value of your available rooms meaning you’ll be able to charge more per room. Having LNR contracts in place also allows you to be flexible in adjusting prices for group and transient business dependent on seasonality. It’s a win-win here.
We all know that the cost of acquiring a new customer is much higher than the cost of retaining an existing customer. LNR contracts not only secure new business over a length of time, but it also encourages repeat business by building that relationship between your hotel and the organization.
Think about it, the company went through a whole process to finally negotiate a great deal with ultimately your hotel, it would take a lot for that company to want to re-enter that whole selection process and do that all over again because that is timely and costly for them as well. Make them happy and you will not have only just won their business this year, but keep making them happy and you’ll have very lucrative business for years to come.
To add, many business travellers probably have never stayed at your property before, so by gaining that exposure and impressing that guest, they are also likely to recommend your hotel to their friends and family back home, or have friends in other organizations that are looking for accommodation in your city. Impressing them here will also increase their chances of booking with you for their own leisure travel. Big group events and conferences are especially impactful as they have the opportunity to scale up a great experience and the word of mouth from that is invaluable.
LNR contracts are essential to a successful hotel sales strategy. They allow you to forecast for those shoulder seasons and drive up demand during those peak periods. They also allow you to build long term relationships that drive repeat business and create a brand reputation and loyalty. It’s almost a no-brainer.