How To Create A Smart Overbooking Strategy

Every empty room in your hotel is money you’ve left on the table. That’s why most hoteliers have an overbooking strategy. But when that goes wrong you’re left with angry customers, scathing reviews, and stressed-out staff.
Man carrying luggage in the lobby of a hotel.Business people with luggage

But it doesn’t have to be that way. In this article, we reveal:

  • The secret to a smart overbooking strategy
  • How to keep guests smiling even when they’re walked
  • How to predict guest cancellations at 98% accuracy

Consider this post your personal handbook to implementing a smart (and profitable) overbooking strategy.

What Is Hotel Overbooking, Anyway?

Sometimes guests cancel at the last minute. When they do, you’re left with empty rooms and a loss you can’t cover. Overbooking is simply a strategy that hotels use to prevent this.
It requires hotels to book more guests than they have rooms—relying on the fact that some of the guests will cancel. This allows you to hit maximum occupancy and potential revenue.

“When done right, a smart overbooking strategy gives hoteliers the chance to mitigate revenue losses, achieve full occupancy, and drive sustainable growth.” —Adir Ron

But when more guests turn up than you have rooms in your hotel, you’ve got a problem. Luckily for us, there are steps we can take to prevent this, which we’ll unpack later in this article.

The Good, The Bad, And The Overbooked

Reserved sign on restaurant table. Booked desk in cozy cafe against blurred background. Booking and reservation concept. Book seat for costumer.

There are plenty of reasons to implement an overbooking strategy in your hotel business. We’ve listed a few of them in the table below:

How Does Overbooking Benefit You?

  1. Cut Your Losses – Overbooking is a backup plan to cover unexpected cancellations. If you don’t implement this strategy, you’ll simply have more empty rooms and less revenue
  2. Drive Up Occupancy – Book more guests than the number of rooms in your hotel. Minus the cancellations, most of your rooms will be fully occupied. Which equals more money at the end of the quarter.
  3. Compensation Is Cheap – Having full occupancy is a lot more profitable than paying compensation to an overbooked guest. And there are steps you can take to mitigate any fallout from this—which we’ll unpack below.
  4. It’s Low-Risk – Overbooking has been around as long as we’ve had hotels—that’s because it’s a low-risk strategy and it drives a profit.
  5. Maximizes Hotel Revenue – When you’ve got full occupancy you’re making more money and have a healthier cash flow in your business. And with smart overbooking strategies based on data, you get clearer insights into your guest bookings and can use that to guide big-picture business decisions.

The Dark Side Of Overbooking

Hand Changing with smile emoticon icons face on Wooden Cube, hand flipping unhappy turning to happy symbol

Nobody likes being overbooked. If it’s ever happened to you, you’ll understand. It can lead to some of the following outcomes:

  • Poor guest experience. If a traveler has come a long way and there’s no room at the inn, they’re going to have a bad time. Especially if they’re a large family or young children. And if you turn away one of your most loyal customers, you could be harming yourself even more in the long run.
  • Bad Press. People are quick to vent on social media or hotel review aggregators if they’ve had a bad experience. No one wants 1* reviews on Google.
  • Requires Planning. To do it right you need a strategy—or both your guests and your staff will be flustered. You need to know who you’re going to walk, you need to know where they’re going to go. And you need to train your staff to handle this delicate situation with grace and tact.
  • It Can Get Expensive. We know—overbooking is a profit-making strategy. And most of the time, that’s true. But you need to base your decisions on hotel and financial data. How much will that free upgrade cost? How much will it cost to walk guests to their new accommodation? How much may it cost in lost business if done poorly?

The disadvantages may be painful, but with modern advances in technology, plus a few tips and tactics we’ve gleaned from our network of veteran hoteliers, you can avoid these pitfalls.

It’s Time To Get Smart About Overbooking

Modern hotel technology can predict guest cancellations by 98%. Let that sink in for a second. You can accurately predict your cancellation rate within 2%—the AI behind this technology takes into account everything from seasonal variations and walk-ins to overstays and cancellations.

You need to leverage your PMS and hotel booking systems to gain these valuable insights. Here’s the thing—20% of hotel bookings made online are canceled. If you haven’t implemented an overbooking strategy that relies on data then you simply wouldn’t know that—you’d be left with empty rooms.

Leveraging the power of data allows you to predict your overbooking rate with a high degree of accuracy, no matter the circumstances. You’ll also be able to calculate the exact level of compensation to provide to overbooked guests—get this wrong and you’ll ruin your profit margin for the quarter.

Many hotels often overbook their standard rooms and offer free suite upgrades to guests as compensation. But this can cut into your profits. You can avoid this by offering paid upsells to guests before they arrive (if they booked directly with you) or upon arrival.

If you’re leveraging this technology, you don’t need to worry about overbooking, for the most part. But you do need to consider what to do if it does happen.

Here’s how to implement a smart overbooking strategy.

Are You Overbooking These Guests?

Make sure that you never overbook the following types of guests: VIPs, families, guests with additional needs, people arriving very late, members of your loyalty program, etc.

You’ll probably want to walk guests (move overbook guests to a new hotel) who booked discount rates or one-night stays.

Don’t forget to add a note to their file saying “Walked”, as you never want this to happen to the same guest twice. And if they make a future booking in your hotel, you can give preferential treatment or a free upgrade to previously walked guests as a thank you for their understanding.

Once you’ve identified the guests that will be walked, you’ll want to sincerely apologize to them and ask them if they would like alternative accommodation. If so, you can proceed to the next step.

How To Walk Guests

As we mentioned earlier, nobody likes being walked. But these things happen, and you need a clear procedure for handling overbooked guests. Here’s how to do it:

  • Have a reciprocal partnership with another local hotel. If you have overbooked guests you can walk them there—and vice versa. Try to make sure that you’re partnering with a hotel of similar quality. If they’ve been bumped from a 5* to a 2* they will undoubtedly not be happy.
  • Make sure the room is comparable or actually nicer. You’ll have to run the numbers and compare room rates to make sure this is viable. You don’t want to end up paying more in guest compensation than the room is actually worth.
  • Take care of them every step of the way. Get the guest free transportation to said hotel, and even a free meal. It will be cheaper than the lost business from negative reviews.
  • It’s not the end of the world. If the walked guest had a booking for multiple days, ask them if they’d like to come back tomorrow—with your highest level of VIP service/upgrades for free. There’s nothing like a stay at your premium suite to erase any bad memories of being walked.

With hotel technology only becoming more advanced, overbookings are getting even rarer. Having a clear procedure in place minimizes the chance of overbooked guests posting negative reviews, and will ensure they have a good night’s sleep.

Get Duve Now

Hotel overbooking is essential for your bottom line. Getting it right requires good, clean data, and taking care of guests who are unfortunate enough to be walked.

The best way to do this is by working with a hotel technology company that lets you stay on top of customer data and develop a cutting-edge, smart overbooking strategy.

See how Duve can give your hotels the extra edge, up your occupancy and your revenue. Get in touch below.

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