While lodging and boarding might make hoteliers the most money, it is far from being the only revenue stream for them. In fact, driving hotel ancillary revenue has become the most profitable strategy for many hotels in the pandemic time.
In times of low room demand, a well-thought-out ancillary revenue strategy can help you maintain your bottom line. By leveraging ancillary revenue opportunities and ensuring profitability, you can rest assured that your business will recover faster than those companies that rely on one revenue stream.
Having said that, even in less challenging times, ancillary revenue strategies are an excellent way to earn additional income via upselling and cross-selling hotel products and services.
Wondering which are the top ancillary revenue tactics that can add to your dynamic hotel pricing strategy and transform your hotel’s revenue-generating potential? Read on to find out.
What is hotel ancillary revenue?
Ancillary revenue is the revenue that is not generated by a company’s core products or services. For example, for a streaming platform, ancillary revenue is all the revenue that it generates apart from subscription fees. For hotels, it is the income generated from selling ancillary services, add-ons, special offers and packages (F&B deals, spa treatments, transfer services, etc.).
How do you calculate ancillary revenue?
To calculate ancillary revenue, you need to subtract the revenue generated via selling additional services and packages from your total revenue.
There are several factors that influence your hotel’s ancillary revenue potential. These include the number of rooms you expect to sell, your star rating and your hotel’s amenities. To see how much your hotel could be earning, gauge your ancillary revenue potential by using our Incremental Revenue Calculator.
Why do you need an ancillary revenue strategy?
A strong ancillary revenue strategy allows you to move beyond selling rooms. It enables you to drive more revenue for your business while ensuring a more holistic guest experience. Here are the benefits that a viable ancillary revenue strategy can open up for every hotel business:
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Improving your guest experience:
By offering a wide range of extra services such as spa treatments, romantic packages or F&B deals, you can boost your guest experience and meet the needs even of the most discerning travellers. If guests like your hotel, it increases your hotel’s demand and allows you to grow your average daily rate (ADR).
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Serving to different types of guests:
The promise of different services can resonate with more guests at your hotel. This will enable you to tap into previously untapped segments of the market.
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Establishing new income sources:
Each of your newly offered products and services is an added source of income. You can diversify your risks and become less dependent on only one specific source.
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Allowing your business to bounce back after the market shocks:
A strong ancillary revenue strategy helps your hotel recover from external market shocks such as COVID. For example, you could have allowed local businesses to use your banquet halls during COVID for employee get-togethers.
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Elevating your marketing efforts:
You can stand out from your competitors by providing extra services that they are missing to offer in their hotels.
9 tactics to generate ancillary revenue at your hotel
But how exactly should you go about crafting an effective ancillary revenue strategy? It is important to identify what your hotel already does well and tap into this USP by expanding current offerings. At the same time, you need to recognise areas where you are currently lagging your competitors and seek to make up for the shortfall. Some of our recommendations include:
1. Transform your free room upgrades into paid upsells
Rather than offering free room upgrades that don’t contribute to your revenues, you can offer upgrades at a discounted rate. Giving your guests an opportunity to bump up to suites or deluxe rooms at a reduced cost allows them to enjoy the best of your hotel. As a result, you can maximise your earnings while enabling your guests to relish a stellar experience.
2. Craft upselling offers and deals
Create packages that leverage the power of upselling to encourage your guests to spend more than what they intended. For some upselling deals, you don’t even need to have any special amenities or budget. For example, you can kick off by selling room upgrades or packages that offer early check-in or late check-out. Since they mean greater convenience for your guests, these deals are among the most popular ones.
Keep in mind that the upselling strategy relies on knowing the wants and needs of your target guests. Suggesting generic deals to your guests is unlikely to bring any desirable results. It’s also essential to upsell your guests at the right time. Pre-arrival upselling has proven to be the most effective as this is when guests tend to pay extra to make sure their stay will be a memorable one.
3. Introduce cross-selling
Cross-selling is the action of selling additional related products to a customer when they are making a purchase.
You can offer guests supplementary products or services based on their interests and past purchases. If you are able to cross-sell in a personable manner, this may prompt them to spend more. This would require you to keep track of your customer’s previous transactions with you or gather the data through incentivised forms and loyalty campaigns.
You can then personalise your ancillary offerings to them for the greatest effect. For example, if you are dealing with business travellers, you can cross-sell access to conference rooms and the business centre.
You could also identify the products and services that you are struggling to sell and bundle them with popular products to make them more appealing.
4. Create packages tailored to each guest segment
Segmentation involves categorising your hotel’s customer base into various segments. Grouping your guests into segments ensures your offerings cater to a number of different travellers with different budgets, behaviours, and needs.
Software segmentation features helps you do this at the drop of a hat. Once you have identified the characteristics (e.g., length of stay, single guests vs couples, country of origin, travelling with/without children), you can tailor your packages to suit the needs of each guest segment.
For example, if you discover that there are many business travellers frequenting your hotel, you could include conference rooms as a part of your package. Or, if you find that most of your guests are couples, you could offer various couple’s activities.
By using upselling software, you can make sure that your guests will only receive the right offers. This means a business traveller will be able to enjoy club lounge access while couples will be prompted to book a romantic dinner.
5. Partner up with local businesses
By partnering with local businesses, you expand your range of services, creating various upselling opportunities. This is a win-win situation for everyone because guests can benefit from a wider variety of offerings. You can increase your revenue through commission from the local businesses, and the local businesses benefit from an influx of customers.
6. Host events and conferences
You should consider all your common areas, outdoor spaces, and event halls as revenue-generating possibilities. You can host corporate events for business clients and concerts/comedy shows for a younger audience. You can also rent out rooms for photoshoots, provide working spaces, or let your customers rent desks for a day.
It lets you attract guests who may not want to stay the night but simply attend a conference or event. This tends to increase your brand awareness and creates additional cross-selling opportunities. For example, customers to the comedy show might be interested in having dinner or drinks before or after.
Even your parking space can be turned into a revenue-driving opportunity. Many guests will appreciate an opportunity to use secure parking even if it means paying a bit extra.
7. Set up a gift shop
Your guests will be eager to take home souvenirs and mementos that remind them of their holiday experience. Use this to your advantage by setting up a gift shop that sells touristy products.
These products might include clothing, unique local products (food, drinks, souvenirs), or work by local artists. The extent to which you build on this depends on your specific requirements. You could go so far as to set up a mini-gallery or launch an online version of your gift shop to take advantage of e-commerce opportunities.
8. Analyse your best-performing deals
One easy way to identify underutilised ancillary revenue opportunities is to look at your existing offerings and identify the packages that bring the most conversions. By doing so, you can expand your best-performing deals and profit by offering guests more of what they want.
It also lets you identify successful aspects of packages that can be adapted across other deals.
To give you some inspiration on deals that can help you generate the most conversion, we’ve analysed the best-performing upsell offers of our customers and compiled our findings in this report. For instance, breakfast throughout the stay was the most popular upsell option in the UK, followed by late check-outs. A City Hotel in London managed to generate the highest total approved revenue of £350K by selling add-ons and room upgrades via Oaky.
9. Get an upselling tool to maximise your current revenue
9. Get an upselling tool to maximise your current revenueAt first, setting up an ancillary revenue strategy and introducing upselling might seem time-consuming. However, there are ways for you to upsell and generate additional revenue without putting in the extra effort.
Hotel upselling software is helpful for hoteliers who want to build a stream of additional income. It can automate the process of upselling and ensures that each guest receives a selection of pre-arrival deals and add-ons tailored to their preferences and needs. This leads to increased conversions and revenue for hotels and enables guests to enjoy the hotel’s facilities to the fullest.
Using an upselling tool makes it even possible to automatically sell upgrades at the right price by leveraging dynamic pricing. This will allow you to respond to market fluctuations more effectively and maximise your earnings.
