How to Reduce Costs And Increase Hotel Incremental Revenue

With revenue decimated by the pandemic, many hotels are searching for ways to reduce their costs, without reducing incremental revenue.

NB: This is an article from Hotelchamp

While it might be tempting to cut costs in certain areas, it isn’t always straightforward when it comes to making these decisions. In this blog, we explore how to increase your additional revenue while reducing acquisition costs and reducing direct booking benefit costs. Plus, you’ll learn how to practically apply this to your hotel’s strategy.

Reduce acquisition costs

There are three costs that often consume too much revenue for hotels and are ripe for targeting:

• OTA commission costs: These costs are hard to stomach in good times but are even more painful in hard times. At the same time, shifting to direct should not harm the precious incremental revenue generated through OTAs.
• Direct costs: With the goal of cutting commission costs, many offer 5, 10 or even 15% discounts to discount bookers. While discounting is effective in generating direct bookings, these discounts cannibalise revenue. Cheaper alternatives work just as well.
• Advertising costs: the cost of advertising on Google ads, Meta or Retargeting take up a large share of marketing spend. However, investing heavily in traffic that doesn’t convert is a quick way to waste funds. Increasing website conversion rate will reduce advertising costs per booking.

Maximise revenue opportunities

At the same time as reducing acquisition costs, maximising all revenue opportunities is vital.

• Weekday revenue: The end of the Summer season also means that less visitors stay during the week. Along with the continued depressed travel market, this means that weekdays particularly need a boost.
• Weekend revenue: The remaining demand is heavily concentrated on weekend stays, with 1 night Saturday stays the most popular. Maximising revenue from travellers booking these dates is vital.

Increase incremental revenue

Finding the right balance between the cost to you and the value to your guest is important when you are focussing on increasing incremental revenue. Here are effective 8 strategies that you can adopt to help increase your incremental revenue:

1. Value-add instead of a discount

Offering value-adds, such as a free dessert or drinks, is a great alternative to get visitors to book direct, instead of offering expensive discounts. These value-adds cost less and help boost ancillary revenue.

Take a free dessert as an example. The cost to the hotel is much lower than a 5 or 10% direct discount but to the customer, a dessert in a restaurant is just as valuable. What’s more, guests won’t just enjoy the dessert on its own. They will often purchase a meal or drinks to go with it. Not only do you have a lower cost per booking, you may even generate additional revenue at the same time.

2. Incentive during low-occupancy periods

It’s possible to offer perks such as early check-in or late check-out when there is lower occupancy during weekdays, without the normal operational headaches. These benefits barely cost anything but have an impact on where a guest chooses to book and are a great alternative to heavy discounting.

3. Reduce traffic acquisition costs

Buying traffic is an expensive way to get bookings. At first, you can acquire bookings at relatively low costs, but as you exhaust a channel, the acquisition costs go up and up. Rather than pumping more and more money in, focus your energies in improving the conversion rate of this traffic. To give an example, most websites are not optimised for Metasearch traffic. Guests land in dry booking engines with a lack of information about the hotel, with no way to go back to the website, and with hidden booking benefits. Consider auditing your website from the point of view of your guests, you will likely find that you are haemorrhaging that paid traffic at key stages in the user journey.

4. Target visitors with mid-week offers

Some guests are open to booking their stay during the quieter weekdays instead of the busy weekend if you give them the right incentive. Create a compelling mid-week offer, and display it prominently on the website to divert traffic to these vacant periods.

5. Increase length of stay

We’ve all indulged in that extra night when booking a holiday, anticipating all of the things we can do in that extra time. There is no reason to think that people will not extend their 1 or 2-night stay, given the right incentive.

Targeting visitors based on their check-in and check-out day and length of stay can yield much needed additional occupancy and revenue.

6. Create packaged offers

During Summer, we witnessed hotels out-perform with specially crafted offers that packaged an overnight stay with an experience, such as dinner, bike hire, or a museum ticket.

These packaged offers allow you to target domestic travellers looking for an escape from the increasingly mundane everyday life, who want to make the most of their stay when they do actually travel.

7. Add a stay

If you have a popular spa or restaurant, you may find a lot of local visitors landing on these pages of your website. The vast majority probably never considered adding an overnight stay, so give them the nudge and highlight the packaged stay offer you’ve created.

8. Use scarcity

In a recent report, Google highlighted scarcity as one of the important factors for top-performing websites. At the same time, guests are aware that hotels are not booming right now, and so telling them that your hotel is almost full will fall flat.

Leverage contextual information to make scarcity messages more convincing. For example, if a person is looking last minute (as is increasingly common), communicate that prices can go up quickly in the last few days before arrival.

Or, if a visitor selects weekend dates, highlight that demand is typically high for weekends due to Staycation demand.

The hotel might not necessarily sell-out, but prices going up can act as the push visitors need to confirm their booking.

Conclusion

There are a number of ways that you can start increasing your incremental revenue. By identifying where you can reduce acquisition costs and implementing new, cost-efficient direct booking strategies, you can start increasing additional revenue at your hotel.

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