What would you do if your hotel lost €18,000 in room revenue each month?
Let’s say your hotel has 250 standard rooms and 250 suites, an occupancy rate of 65% and an ADR of €150. You could be losing that much each month because of free room upgrades.
A great deal of free room upgrades are due to the hotel overbooking their standard room category. It’s a strategy that’s frequently used by hoteliers to fill their rooms. However, too many freebies can mean that you are missing out on potential revenue.
Creating a smart overbooking strategy for a hotel can minimise the number of room upgrades that are given away. When planned carefully, this strategy can have a vast impact on the total revenue. Continue to learn how to generate more revenue with an overbooking strategy.
Why oversell the standard hotel room category?
When a hotel’s standard rooms are full, there is still potential to fill the hotel entirely, that’s where overselling comes in handy. You can overs
ell your basic room category and upgrade guests to the next one. Most hotels will take reservations for standard rooms at least until they can also fill their next highest room type.
This means the standard room inventory can remain open longer on all channels. It also makes up for any cancellations and no-shows. Having a look into the average rates for cancellations and no-shows helps to estimate the amount of possible overbooking.
Overbooking and upgrading reservations for free can be more beneficial for a hotel than unsold rooms and low occupancy.
The impact of giving free upgrades
While it’s true that free upgrades can be considered an investment into a guest’s experience, and the likelihood for guests to return and leave good reviews, how to track any positive financial impact of these free upgrades? It simply isn’t possible.
However, what is possible is to measure how much potential revenue each free upgrade costs. A single instance of a room category closed online may not seem like it has much impact on hotel’s revenue. But over time, this number really adds up.
This is illustrated in a sample calculation below:
Here it becomes visible how €18,000 of missed revenue for a 500-room hotel isn’t an exaggeration, it’s a realistic possibility.
But good news: there’s an easy way to lower your number of free upgrades.
How to drive incremental revenue from overselling standard room type
There are two ways to start generating extra revenue from overbooking by upselling, without giving all your upgrades away.
Option 1: On arrival upselling at reception
This is when the hotel offers paid upgrades to travellers when they check-in. While it does work, there are some drawbacks:
- The new room type may not be ready, resulting in waiting time for the guest.
- If not done right, the in-person upsell can feel awkward and unpleasant for the guest.
- It’s not scalable. Especially with smaller teams and more online check-ins it’s not possible to upsell to all hotel guests.
- Low chance of reselling the standard room last-minute.
Option 2: Pre-arrival upselling via an upselling tool
This method makes the same offer as front-desk upselling, but is streamlined and automated by the upsell platform.
There are many advantages:
- Better conversion rates than in-person upselling: average conversion rate of 2-5% on paid upgrades. Attractive images, intriguing descriptions and the perfectly timed email get guests excited to pamper their experience.
- Increased ADR: automated software can pull room category supplements from your booking engine and apply dynamic room upgrade pricing for a maximum lift in ADR.
- Scalability: automated upselling reaches all guests via their preferred channel.
- Efficiency: Full automation means more time for other important tasks.
- Smoother guest experience: Travellers get offers straight in their inbox and can evaluate and book them in their own time. Afterwards, their upgrade is confirmed – simple as that.
- Easy planning: with information being shared automatically across departments it becomes easier to prepare the rooms with minimal last minute changes.
- Further upselling or cross-selling opportunities: front desk team can still upsell to guests on arrival, or instead of an upsell, offering experiences in other hotel departments, such as F&B or hotel spa.
With the right plan in place, overbooking can be an effective strategy for hotel total revenue. It allows hotels to increase the number of bookings, generate additional revenue, and even improve guests’ overall experience. It’s time to take a look at how overbooking is handled at your property.
