Overbooking Strategy & Solutions for Hotels with Realistic Case Studies

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overbooking strategy and solutions for hotels

For the non-hoteliers and even first-time hoteliers, “overbooking” is the word that strikes fear, stress and even panic. For the first-time hoteliers, it makes sense if you are scared of overbookings, but, hey, did you know that you can have an overbooking strategy that would help in both managing and effectively leverage the good side-effects of the overbooking incident?

What is overbooking?

Let’s imagine: You have 10 rooms. But you got bookings which translate to 12 bookings of 12 rooms. This means you have an overbooked hotel in your hands.

But why would you even allow 12 bookings of 12 rooms to be booked if you know you have 10 rooms only? Turns out, some inevitable reasons why overbookings happen are:

Why do overbookings happen?

  • Irregular room inventory management
  • Manually updating room inventory changes: When you manually try to update your room inventory, there is bound to be some human errors creeping in.
overbooking in hotels and why it happens
Updating your bookings and room inventory changes manually can cause overbookings in an overwhelming fashion. ( Photo by Julia Joppien on Unsplash )
  • Simultaneous bookings of the same room in different OTA channels: This is an inevitable situation, where even if a great channel manager like Roomsy updates your room inventories in real-time, there may be simultaneous bookings.
  • Setup errors: If there has been some setup errors, then things can dysfunction and give you bad data. And no matter what strategy you are looking to apply, bad data is worse than no data.
  • You did it in a purposeful and calculative manner.

But first, the good reasons why hoteliers should be happy about an overbooked hotel:

Advantages of overbooking

  • When your hotel is overbooked, this means that the demand is high. It also means that other hotels in your locality will also be having high demand. So if you apply an overbooking strategy in a clever manner, you can actually steal your rivals’ guests and use it to your own advantage.
advantages of overbooking in hotels
If you apply an overbooking strategy in a clever manner, you can actually steal your rivals’ guests and use it to your own advantage.
  • There will always be cases where somebody booked a room, and they never showed up (no show) or cancelled at the last minute. Even if you are a hotelier, and you had to go on a trip somewhere, we all have cancelled rooms at the last moment. So when you overbook, you can fill up those cancelled rooms with those overbooked guests. But the trick is to do it right.
  • Simplest and the most common merit of overbookings are that it maximises your hotel revenue in the simplest and old-fashioned way hotels have been practising for ages.

Disadvantages of overbookings

All the disadvantages of overbooking have either directly, or indirectly related to customer experience. Neither the guests, not the hotel management enjoys walking the guest out. Here are some disadvantages of overbooking:

  • The walked out guest can create an angry scene and spread negativity around your hotel. As a local business, word-of-mouth is an incredibly powerful way to bring in more guests (especially if you get a huge chunk of your monthly or yearly reservations from walk-ins or telephonic calls).
  • This frustrated guest can even go online and talk about how he/she booked a room and came to the hotel to find out that they can’t have what they rightfully want. You need to effectively respond to such negative reviews online (here’s how)
disadvantages of overbooking in hotels
The walked out guest can create an angry scene and spread negativity around your hotel. (Image by mohamed Hassan from Pixabay)
  • Your chances of gaining more visits from the walked guest get considerably lower and hence, a lost opportunity to increase your property’s revenue.
  • Sometimes, the cost of walking out a guest can be higher than the revenue you would have earned. This can be if your guest either demands more facilities at higher costs or if you are trying to make up for the bad experience with extra add-ons.
  • You will have to train your hotel staff (especially the front desk management) to carefully choose whom to walk out and how to handle the walking out incident. Training your staff isn’t really a disadvantage, but if your staff isn’t properly trained or able to make decisions on-the-spot, you will have all the above disadvantages coming true (higher chances).

Overbooking strategy for hotels

If you are thinking of an overbooking strategy for your hotel, you are also thinking of ways to effectively walk out guests without lessening the guest experience. Since such walked out event will be inevitable, you need to first think about which local hotel or lodging can you accommodate the guest. Here are the steps to take when you are thinking of maximising your revenue with an overbooking strategy:

(1) Partner with local hotels (preferably in nearby areas)

It doesn’t matter if you are an economic lodge or a 5-star hotel like Marriot International. You need to find similar lodgings which provide similar rates, experience, services and quality of service. If you have different room types with different facilities, then you need to find similar lodgings which have similar facilities.

overbooking strategy for hotels- Find and network with local hotels
You need to find similar lodgings which provide similar rates, experience, services and quality of service. ( Photo by Prateek Katyal from Pexels )

The factors you need to remember while choosing local hotel partners for the accommodation of walked out guests are:

  • It should be similarly priced. If you walked out guest was supposed to pay $100 for his room, the accommodation should be somewhere near $100.
  • It should have similar facilities. If you walked out guest took a double smoking room with a kitchenette, bath-tab and a mini-fridge for drinks, then the accommodation should have it, as much as possible.
  • It should be as near as your hotel so that it’s not too much pain for the guest to find a play to stay. Unless the guest demands/requests another location.
  • The quality of service and guest experience provided in the accommodation MUST be up to your level of service and guest experience. If needed, do a bit extra to make up for the bitterness of the guest.

(2) Look at your data and find the cancellation rates

If you have been managing your property in the traditional pen and paper method, it is going to be a very enduring task to go through countless papers and registries to find out the cancellation rates per month or year. You must right away look for a cloud-based hotel management software to both get real-time updates on bookings and reduce the overbooking rates (due to manual OTA inventory updating) tremendously.

Here is how to find the cancellation rates of your rooms and room types using hotel management software like Roomsy:

  • On your Roomsy dashboard, click on the “Reports” tab.
overbooking solution for hotels 1- Use Roomsy PMS to find your cancellation rates
Overbooking solution for hotels step 1- Use Roomsy PMS to find your cancellation rates
  • Check your high-peak seasons and low-peak seasons in the ledger graph from a particular time period. If you have never used Roomsy before, you need to wait for the data to come in before you make informed decisions. If you are like the hotel below, then your peak seasons start in June every year and show a slight decline after 3 months. The hotel below also has its lowest-peak seasons from November to February every year.
overbooking solution for hotels 2- Find out your overall cancellation rates for both peak and low seasons
overbooking solution for hotels step 2- Find out your overall cancellation rates for both peak and low seasons
  • As the Ledger Summary report opens up, click on the “Sales” option on the left.
overbooking solution for hotels 3- roomsy property management software
  • Check the cancellation rates of each of these yearly peaks and low seasons and find the average for both the seasons. You can now see the cancellation rate of each room and the average stay duration as well. As you scroll down, you can see the overall average rate of cancellation during each of peak or low seasons. Find the average now.
overbooking solution for hotels 4- hotel management software
  • You can also find out the cancellation rates by room type to be more accurate.
hotel cancellation rates by room types
  • After calculating your averages of both peak season and low season, this hotel has found out that the overall cancellation rate throughout the year is 31.23%. However, during peak seasons, the cancellation rate is seen to be 32.61%, in comparison to 24.89% during the low seasons.

Why should you find cancellation rates for both peak and low seasons?

When you find the cancellation rates on the months your hotel has a great occupancy rate (at least 90%) and when business is cold, you will know how much you need to overbook. However, on low seasons, you technically don’t “overbook”, since you will still have empty rooms to fill – but knowing the cancellation rates can help you strategise how to create cancellation policies that would make up for the cancelled rooms.

(3) Check the booking sources

Another great reason why you need to calculate the overall average of cancellation rates throughout the year and peak plus low seasons is so that you can decide just how much percentage of bookings can be done extra.

If you want to check the booking sources in Roomsy:

  • On your Reports Dashboard, you will see a tab where the option “Market Segment” will be seen. Click on that. Choose your particular time period. In this hotel’s case, a majority of its bookings throughout its lifetime has been through Booking.com
hotel cancellation rates by booking sources
  • If you want to fine-tune your data, even more, to be as accurate as possible, you can go ahead and check the average of bookings made in each peak and low seasons. This shall help in minimizing guest walkout as much as possible (but it will happen, you cannot stop it). None of the parties enjoys walking guests out.

(4) Sit down with the data and calculate

The next and the final step you need to do to know exactly how much percentage of your rooms must you overbook is to sit down with your data and team and talk.

As per the cancellation rates of the above hotel’s case, the best course of action the hotel management can take is to start with overbooking a minimum of 20% of room nights capacity. This is because the cancellation rates of both peak season and low seasons are higher than 20%, and the overall cancellation rate is above 20% as well.

So irrespective of the month and booking source, the safe zone will be a maximum of 20% only.

crisis action plan for hotel overbooking - STOP BOOKINGS
Once you reach that threshold, you stop bookings whatsoever.

So this means that if the above hotel has 100 rooms, 48% of them were them were booked through Booking.com, 37% of them were through direct walk-ins or telephonic reservations, 13% of them were through Expedia. The remaining 2 rooms can act as a buffer.

So this means that to make up for cancellations through each of these sources, only 20% of those rooms will be booked against cancellations. Once you reach that threshold, you stop bookings whatsoever.

However, since this hotel has a variety of room types, some rooms are more popular than others. This means that the hotel manager must be careful in choosing which room types and how many of that type can be booked against cancellation.

lifetime cancellation rates based on room types, average stay of guests  using hotel management software Roomsy
This is the lifetime cancellation rates of the example hotel by room types.

Here is where you need to think carefully and decide even more carefully on who can be walked out.

How to walk guests when a hotel is overbooked?

There are a number of factors which determine which guests need to be informed about a no vacancy. They are:

  • The type of guest he/she is
    Is he alone traveller who is on a trip? Or is the booking done for a family? Are the guests corporate bookings? are there senior citizens involved in the booking?
  • The frequency of the guest:
    Is he a repeat customer? Is the booking created by a new customer? Is the repeat customer part of any loyalty program?
How to walk guests when a hotel is overbooked? Factors to keep in mind
  • The time of check-in :
  • Is this guest checking-in hours before midnight or in the morning?
  • Duration of stay:
  • Is the guest going to stay for one night only or for some more days?
  • Room charges:
  • Which of the guests paid more for that same room type?
  • Vacancy in a partner hotel:
  • Is there a vacancy in your partner hotel?

Now comes the interesting part.

Crisis action plan for hotel overbooking (Sample Case Studies)

Case 1

If you had to choose between two guests – let’s name them Anne and Marie – who booked the same room type (for example, single non-ac room), whom do you walk out? Anne paid the same amount as Marie but is going to stay for 3 nights. On the contrary, Marie will be checking-out in 17 hours.

Crisis action plan for hotel overbooking case study 1
If you had to choose between two guests – let’s name them Anne and Marie – who booked the same room type (for example, single non-ac room), whom do you walk out? ( Photo by David McEachan from Pexels )

As a hotel manager, you can decide to inform Marie as soon as possible that since your hotel is overbooked, you will be giving her accommodation in another nearby hotel which has the same facilities, room rates and quality of service. As a token of apology, you can decide to give Marie some extra services or a coupon code for the next visit or anything else.

Case 2

However, if Marie is a senior citizen, then you need to think again. If you find out that Anne is visiting the area for business purpose, you can inform Anne if it is alright to relocate her to partner hotels. This is because Anne doesn’t care where she stays for 3 days since her company will be paying the bill. If Anne prefers a particular location (for example, near the meeting or conference etc), then you must honour her request. That is the least you could do for her.

Case 3

Let’s say there are 3 potential guests or bookings you can walk-out, and you need to choose one of them. There’s the Smith family of 4; the Johnson family of 4 who is a repeat customer and A senior citizen couple. All these bookings were done for the Queen Cabin room type. However, since the Johnson family is a repeat customer, they have to pay 10% less than the usual room rate. Whom would you relocate?

Crisis action plan for hotel overbooking - how to walk guests out
Let’s say there are 3 potential guests or bookings you can walk-out, and you need to choose one of them. Whom would you relocate? (Photo by John-Mark Smith on Unsplash)

Logically, the hotel manager should decide to relocate the Johnson family, since they are a repeat customer already and have had previous good experiences with the hotel. The Johnson family has also paid less amount than the other two families, so if you do walk-out this booking, the loss would also be less. Additionally, it would be easier to apologise to this family since a good relationship has already been established.

Case 4

However, if the Johnson family is a priority or elite customer in your loyalty program, then you must rule them out. A crucial hint in choosing who should be walked out is knowing the usual personality and temperament of the repeat customer. Should you rule this family out of the possibility, you must now choose between the senior couple and the family of 3.

Conclusion

While overbooking is the oldest and most reliable strategy to maximise your property’s revenue, it is to be applied with careful thought and experience. If you take any wrong step, it could result in a bad reputation and hurt your hotel’s bottom line. Other ways to increase your property revenue are to have a strong cancellation policy and other methods too.

Overbooking Strategy & Solutions for Hotels with Realistic Case Studies
While overbooking is the oldest and most reliable strategy to maximise your property’s revenue, it is to be applied with careful thought and experience. If you take any wrong step, it could result in a bad reputation and hurt your hotel’s bottom line. (Photo by Sayantan Kundu from Pexels )

It usually takes experience and apt emotional intelligence to figure out which guests need to be walked out and which extra token of apology would be appropriate for smoothening guest relations.

Are you a hotel manager? Have you tried our overbooking strategy yet? Or is there something we have missed? Do let us know in the comments below!

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