How would you feel about losing €18,000 in room revenue per month?
NB: This is an article from Oaky
Imagine your hotel had 250 standard rooms and 250 suites, an occupancy rate of 65% and an ADR of €150. That’s potentially how much free upgrades could cost you every month. Learn how to implement your overbooking strategy more effectively in order to grow your incremental revenue.
Subscribe to our weekly newsletter and stay up to date
Many free upgrades happen because hotels overbook their standard room category. Applying an overbooking strategy is a common practice in hospitality and legitimate way to fill your hotel.
But if you’re not careful, you hand out too many freebies without gaining anything.
Be strategic about how much you overbook by and try to minimise the number of free upgrades you give. If you play it right, you can even generate incremental revenue along the way.
We take a look at how you can do that below.
Why would you oversell your standard room category?
If your standard rooms are full, but you want to keep selling them, overbooking them is the only way. Most hotels will take reservations for standard rooms at least until they can fill the next higher room category, too.
This allows you to keep inventory open longer on all channels. It also accounts for cancellations and no-shows. Check your average cancellation and no-show rates and determine how much you want to overbook by.
Finally, overbooking and upgrading guests for free often makes more sense than letting a room go unsold. However, other factors come into play, too, so a case-by-case approach is needed.
The impact giving free upgrades has on your hotel
Yes, you can look at free upgrades as an investment in your guest’s experience, their likelihood to return and leave good reviews. The positive financial impact of each free upgrade is impossible to track though.
You can easily measure how much each free upgrade costs you in missed revenue. In a single case, the lost category supplement may not look like much. But it adds up to a handsome sum faster than you think.
Our sample calculation below illustrates this:
Calculator: Missed Revenue from Free Upgrades
Now you see how €18,000 of lost revenue for a 500-room hotel is not an exaggerated idea but a realistic possibility.
The good news is, you can cut back on the free upgrades you give quite easily.
How to drive incremental revenue from overselling your standard room type
Upselling is the most effective way to generate extra revenue from overbooking and avoid giving all upgrades away for free. You have two options to implement this.
Option 1: On arrival upselling at reception
This simply means offering paid upgrades to travellers during check-in. While it works and brings results, it has quite a few disadvantages, too.
- The new room may not be ready, resulting in waiting time for the guest. This can dampen their experience.
- If not done right, the in-person upsell can feel awkward and unpleasant for the guest.
- It’s not scalable. You can’t upsell all travellers, especially not with smaller teams and more online check-ins where guests skip the reception.
- You probably can’t resell the standard room last-minute.
Option 2: Pre-arrival upselling
The offer is the same as with on-arrival upselling but Oaky automates the entire process.
This brings many benefits:
- Better conversion rates than in-person upselling: Oaky achieves an average conversion rate of 2-5% on paid upgrades. Attractive images, intriguing descriptions and the perfectly timed email get guests excited for the fancier room.
- Increased ADR: Oaky pulls room category supplements from your booking engine and applies dynamic room upgrade pricing for a maximum lift in ADR. But even selling upgrades at a slight discount will positively impact this KPI. Consider using segmentation to offer different rates for loyalty members, direct bookers and OTA guests.
- Scalability: Automated upselling reaches all guests without you having to do any extra work.
- Efficiency: Full automation means that you have 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: Your team knows which room to prepare and there are no last-minute changes.
- Further upselling or cross-selling opportunities: You can still upsell guests on arrival if they didn’t upgrade via Oaky. Or instead of an upsell, how about promoting another department?
With the right approach, overbooking can have many positive outcomes for your hotel. It can offer a chance to drive more bookings, invest in your guest’s experience and even generate additional revenue.
Now it’s time to look at how you handle overbooking at your hotel.
How much revenue do you give away with free upgrades every month?