Overbooking is the biggest nightmare for guests and hoteliers. Nevertheless, many hotels use an overbooking strategy. A good strategy can work very well, but be careful: a consistently bad strategy can lead to a reputation loss. In this article, we tell more about overbooking strategies and what it can do for your hotel.
What is overbooking?
You’ve probably dealt with it yourself, and you know very well what an overbooking is, but for those who don’t know: an overbooking means that more reservations are made than there are rooms available. The overbooking is often intentionally caused by revenue managers to increase revenue. Still, it can sometimes also occur when unexpected maintenance is required for a hotel room or when there is a problem in the booking process.
If a revenue manager intentionally causes the overbooking, we speak of an overbooking strategy. It’s a method to increase the occupancy rate and revenue. Although there are overbookings before the arrival date, the goal is to have a 100% occupancy rate and no ‘real’ overbookings. This is calculated by estimating the number of cancellations and no-shows on the day of arrival.
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Why overbook hotel rooms?
Overbooking is a strategy of revenue managers to achieve the highest possible occupancy rate. The data is used in advance to analyse accurately how many rooms can be overbooked.
When your goal is to sell 100% of your hotel rooms, empty rooms are not desirable. However, there is always a percentage of cancellations and no-shows, which means you will rarely have full room occupancy unless you act in advance. For this reason, the decision is often made to sell more rooms than there are, so the overbooking can eventually fill the gaps left by the (last minute) cancellations and no-shows.
Why is an overbooking strategy important?
An overbooking can, depending on the strategy, make or break your hotel. You want 100% occupancy rate and no ‘real’ overbookings on the day of arrival. To achieve this, you need to plan, analyse, and calculate accurately. This task must be carried out by someone with expertise in overbooking strategies so that the risk of miscalculations is minimal. Overbooking your hotel is not a gambling contest; it is a severe probability calculation.
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Tips for an overbooking strategy
Data analysis is critical to draw up a good strategy. When you start, we advise you to include the following points in your assessment:
- The total available rooms
- The confirmed reservations on a specific date
- The number of reservations with payment guarantee (e.g. credit card details)
- The expected number of cancellations and no-shows (based on previous years)
- The expected number of walk-ins
- The expected number of stay overs and under stays
- The upgrade options based on the room types
Also, carefully monitor all reservations, cancellations, and modifications. What are the numbers, and can you still expect problems somewhere during the day? On events or other special days, don’t use the overbooking strategy. Other accommodations in the area are probably fully booked, which makes it more challenging to relocate* a guest in case of an emergency. On those dates, the number of cancellations is lower because guests don’t want to miss the event.
* Sometimes hoteliers also say: ‘walk the guest’ instead of ‘relocate the guest’.
What are the advantages and disadvantages of overbooking?
Are you considering using an overbooking strategy at your hotel? We’ve briefly listed the pros and cons for you.
Advantages of strategic overbooking:
- Achieving a higher occupancy rate
- Maximising revenue
- Relatively low risks (if there is a good strategy behind it)
- Compensation for the guest is often cheaper than an empty room
Disadvantages of strategic overbooking:
- Risk of miscalculation (a ‘real’ overbooking)
- Additional costs to accommodate guests at another property
- Accurate monitoring of reservations takes a lot of time
- Involved employees must have expertise in strategic overbooking
The coronavirus is currently hitting our market hard, making it challenging to implement an overbooking strategy. However, you can prepare yourself for better times: learn more about overbookings and strategy, talk to experienced revenue managers and try to perform data analysis. Good luck!
For more than 16 years, SmartHOTEL has been helping hoteliers navigate the exciting world of online distribution. From our office based in the Netherlands and the United Kingdom, our team serves independent hotels, hostels and chains worldwide by providing channel management and tailored online distribution solutions. A lot has changed over the last years, but our goal remains the same: simply connect hotels to the world. For any questions regarding our services, please contact us at firstname.lastname@example.org or call +31 (0)182 75 11 18.