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Meeting Room Yield Management

May 19th, 2008 · 8 Comments

Six to Start is based in a large building containing dozens of managed and serviced offices. On the way to the shared kitchen at work, I noticed two empty meeting rooms. It occurred to me that, just like an empty seat on a plane, an empty meeting room is lost cash. Sure, there is a small cost on keeping the room clean and well-maintained, but the standard fees for meeting room use provide an enormous profit margin. Given that most of the cost for the room – building it and buying furniture – has already been paid, surely it would be wise to keep it in use as much as possible, even at a lower per-hour fee, in order to maximise profit?

I suspect that most building managers don’t bother doing this for one main reason – it would take too much work. To prevent losing money either through oversupply (by means of unused meeting rooms that could’ve been offices) or undersupply (by means of lost meeting room fees when all the rooms are full) there is usually a certain ratio of meeting rooms to offices.

Obviously the calcuation isn’t perfect. Most rooms will be empty most of the time, and occasionally all the rooms will be full. In order to still try and make money, managers will set the fees at a rate that will – over time – cover costs, even when the room is empty.

This is incredibly inefficient – as inefficient as an airline setting a single price for tickets within a class, and then letting the plane fly with any seats empty. In 1985, American Airlines began a yield management program in which otherwise empty seats were sold cheaply. Nowadays, we all know that there are certain days where tickets cost much more, and that we can also snap up bargains if we wait until the very last minute.

So, why not perform yield management on meeting rooms? Set up a simple tracking system for usage of all meeting rooms in a building and dynamically set prices based on both historic and live demand. Bump up the prices for rooms at peak times (late morning, early afternoon) and for those reserving in advance for important meetings, and reduce them for slower times (evening, weekends). Allow non-time sensitive customers to check prices so that they can snap up a bargain if the room is empty for an impromptu brainstorm.

The main reason I’m interested in this is not because Six to Start needs to use meeting rooms a lot, or that I see this as a brilliant business opportunity (then again, who knows…); it’s because my thoughts have lately often turned to organising events like Barcamps and miniconferences. These sorts of events are relatively easy to set up, but you do still need to find a reasonably large amount of space, which can be tricky to find. I remember standing on the roof garden during GameCamp (kindly hosted by Sony 3Rooms by Brick Lane) and looking out at the large office buildings nearby, thinking of the dozens if not hundreds of meeting rooms that were going empty right at the moment. Rooms that could be used – and paid for – by any number of interest groups, clubs, conferences and reading groups. If buildings plugged their data into a central website (say, RentAMeetingRoom.com) which aggregated and displayed all meeting room availability and prices in a city, you could really make the system much more efficient. Perhaps in time you would even have people buying meeting room futures, or suchlike.

There must be any number of physical resources like airplane seats in which:

  • There is a fixed amount of resources available for sale.
  • The resources sold are perishable. This means that there is a time limit to selling the resources, after which they cease to be of value.
  • Different customers are willing to pay a different price for using the same amount of resources.

where yield management isn’t being used because the prices don’t justify it yet (after all, flights are more expensive). But as the price of the software comes down and administering the use of the resources becomes more streamlined, I think we’ll be seeing yield management being applied to all sorts of weird things like cars, bicycles, rarely-used powertools, pianos, gardens and so on. What a glorious future we have ahead of us!

Tags: economics · future · spec · web

8 responses so far ↓

  • Chris M. Dickson // May 20, 2008 at 7:50 am

    That’s not very far away from Stelios’ principles for easyGroup companies. Sadly he has proved the hard way that it doesn’t really work for cinema seats – at least, not in Milton Keynes when you don’t have access to the latest and greatest films. (Also, I’m not sure that the pizza business has nearly the same extent of yield management in terms of delivery scheduling that it once did.)

    In fact, Stelios is doing a very basic implementation of your requirements already with easyOffice, except that the atomic time unit is a week, not a day or even an hour, so far less flexible than you might like. Might this change in the future? Possibly.

    I like the thought of yield management for cars. There are plenty of car-sharing clubs already, but they all tend to prefer a pretty flat, unresponsive sort of fee schedule. (Perhaps this is because they’re all pretty small so far.) There probably is the scope for at least one of them to offer highly responsive fares, if they have sufficient economies of scale, but so far it isn’t clearly something that their members are clamouring for.

  • Adrian Hon // May 20, 2008 at 8:24 am

    Hadn’t spotted EasyOffice, although it doesn’t surprise me. They actually allow you to book meeting rooms there, but it seems you need to book for whole morning or afternoons, and the price isn’t all that amazing. I’m sure it will improve though.

  • Matt // May 20, 2008 at 6:52 pm

    Lowering the price for unused meeting rooms wouldn’t work because it’s the reverse of the easyjet approach, the last people to take up the space get the lowest price, creating a complete disincentive for people to take up the space initially. As there’s generally an oversupply of such meeting rooms, there would be little concern for the customer that a room wouldn’t be available, so the customer would be best served waiting until the last possible moment before booking.

    Addressing the wider point of why office space isn’t handled the way you say, is that the leases under which 99% of all office space is used do not allow unrestricted sub-letting or sharing of occupation. Companies simply can’t let the space out to other occupiers. In the majority of cases, the money that a company would receive for letting out the property wouldn’t get close to compensating for the costs involved (e.g. making sure the users complied with security requirements, cleaning the office space more frequently, insurance etc.) . These costs are only managable when carried out on a bulk scale (e.g. serviced offices) by specialist serviced office companies.

  • Adrian Hon // May 21, 2008 at 12:37 am

    I completely disagree with your first point. Just as people book flights weeks or months in advance in order to make plans, companies will regularly book meeting rooms days or weeks in advance – I know that we do, because if we’re organising, say, a board meeting, we need to pick a day and date that everyone can come along. And while *most* of the time there are free meeting rooms, sometimes there aren’t – and so you really can’t leave it up to chance for important meetings.

    On your second point, I think that things are a little more subtle than you suggest. Clearly serviced and managed offices – of which there are many in London – could let out meeting rooms in the way I describe, because they own the meeting rooms. In fact, these guys regularly advertise their meeting rooms for hire on the web (and most of the time they are empty, etc etc). I would also dispute that companies can’t let out their meeting room space to occupiers – increasingly, web companies are subletting unused desk space to individuals or smaller companies. I’m not clear on security and insurance although I do think that companies would be able to make the renters liable and build the cost in (as it’s built in for other meeting room hire), and most companies have their entire offices cleaned every night for a standard rate.

  • Matt // May 21, 2008 at 11:29 am

    Re the first point: What you say is true for important formal meetings, but the majority of meetings are relatively informal and have a certai n degree of flexibility – enough to work around the unavailability of a room.

    People book flights months in advance in most cases because it is cheaper, not to fix their plans . If Easyjet had a ‘first seats most expensive, last seats least expensive policy’ I’m certain that on average people would leave it later than they would otherwise – which means that Easyjet would be getting paid later on average, thus making a loss.

    On the second point, serviced and managed office providers are a minority of all office space and I’m almost certain without exception will not own the freehold to the building. Instead they will have specific forms of leases which allow them to act in a way that you suggest.

    However the same does not apply to the majority of office space, which is usually let on an FRI lease which typically will not allow any ’sharing of occupational’ without obtaining Landlord’s consent – a lengthy process.

    Underletting is usually permitted within certain limits and provided that the landlord gives prior consent – but underletting is not the same thing as allowing a meeting room to be let out. Underletting creates a formal legal right in the property granting exclusive possession and various other legal rights. It is not the same thing as permitting individuals to use the room.

    Ultimately, the problem with what you are suggesting for the majority of cases (excluding serviced offices) is that the resulting lease would not be institutionally acceptable and would be questioned by any bank provided finanace.

  • Adrian Hon // May 21, 2008 at 12:17 pm

    I don’t agree that ‘the majority of meetings are relatively informal and have a certain degree of flexibility’. Perhaps this is the case for people working in large corporations who aren’t deal with external people, but I have three meetings today, and there is no flexibility – if I travel for half an hour to a company’s office and get told that there are no meeting rooms left, I’ll be pretty pissed off. People schedule meetings and concalls at exact times in order to use their time efficiently.

    Also, we’re talking about businesses here, not holidaymakers. Businesses book flights weeks or months in advance in order to guarantee a seat on the flight for an important meeting; it’s the same reason why people book hotel rooms months in advance for big conferences, even if the rooms are more expensive. Seats on peak flights, and rooms in hotels at peak times, are a limited and scarce resource and so the people who *really* need them can, and are, willing to pay more.

    I am not suggesting that flights – or rooms – start out most expensive and then gradually get cheaper. This is clearly not what happens in reality, because the demand curve is different. If you were to graph out the price of tickets for a normal flight for an average day, it would remain relatively consistent, then jump up 21 days before the flight, and then a couple of days before the flight, the price would crash, because they *need* to sell those spare tickets, at any price. This is a simplification, but it’s why Lastminute.com exists. However, most people do not use Lastminute.com for holidays, because they like booking things in advance and choosing specific destinations.

    Wikipedia has a pretty good writeup on yield management – I suggest you check it out.

    Regarding the second point, you clearly know more about the exact legal situation. However, ultimately it’s down to the contract you sign with the landlord, which in my experience is always negotiable (providing that you take on liability, etc). Many companies can, and regularly do, sublet office space in London; I know both very big and very small companies (e.g. Endeca, Dopplr) who do this.

    I don’t expect everyone’s meeting rooms to suddenly become yield managed, or everyone to immediately renegotiate their contracts – but I do think that things are becoming increasingly yield managed. At the end of the day, an empty meeting room is a wasted meeting room; ditto for anything unused and scarce.

  • Adrian Hon // May 21, 2008 at 12:25 pm

    On another note (and I think I’m just talking to myself here now), the EasyOffice setup seems like a strange choice of business to me. The time and setup costs involved in buying and renovating an office building seem rather high compared to the profits they could make on renting their own rooms out at slightly lower costs than the competition; it’s a difficult business to scale, unlike airlines. Whereas if they could sell *other* people’s rooms, well…

  • Sarbjit Bakhshi // May 27, 2008 at 4:55 pm

    As I see it, there are 3 principles behind your suggestion:

    1. How to ensure greater profit through the continuous use of capital (meeting rooms) whic leads to an increase in profit/minimisation of loss through low times.

    2. The transaction cost of making the rooms available and also of people booking those rooms.

    3. The culture aspect. Meetings to be informal or formal?

    One should perhaps also focus on the benefits:

    1. Companies need meeting rooms occasionally and preferably near their clients. The Adam Smith Club in London offers this facility.

    2. Transaction costs should be minimised by automating the process as much as possible. So room booking should be able to be done in advance and at short notice (even through a sms – can you imagine ‘Find meeting room for 6 near SW1′)?

    In my office building we are chronically short of meeting rooms and it would be good if we could hire an external one when needed.

    As the people above have noted. This model as worked for Stelios and with increased pressures on office space in London – I can see merit in this idea.

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