Even if you’re not in the industry, you probably know what it means when a hotel overbooks. Sometimes, this is done by accident, though some hotels do it intentionally as well.
In this article, we will discuss hotel overbooking. We will cover what it means, some advantages of doing it as a hotel owner, as well as the inherent challenges that go along with it if you decide to implement this policy.
Hotel overbooking is the practice by a hotel of selling more rooms than are actually available on a given night. The main difference between double booking and overbooking is intent. Double booking happens accidentally and is often an honest human mistake. Overbooking, by contrast, is intentionally scheduling more appointments for the same time slot.
Double booking can happen accidentally if a hotel is using an inefficient system. The most common cause is if inventory available does not update quickly enough on some of the distribution channels the hotel is using to sell its rooms. This can lead to additional reservations coming in despite the fact that the hotel is fully booked.
Overbooking, on the other hand, usually happens with the full knowledge of the hotelier and their staff. If a hotel owner or manager chooses to intentionally overbook, they probably are doing so because they want to offset the lost revenue and occupancy if there are some no-shows or last-minute cancellations.
It would be correct to say that the practice of overbooking is a contentious one in the hotel industry. It’s easy to understand why a hotel owner would do it, since this strategy can potentially boost their revenue. However, others can’t help but think about what will happen if too many guests show up and there are not enough rooms to go around.
The good news is that you can put a sensible overbooking strategy into place if you intend to do this as a hotel owner. It should allow you to minimize the risk if this is a technique that interests you.
Now, let’s get into a little more detail about what a hotel can potentially achieve if it decides to intentionally overbook its rooms.
Of the various reasons that a hotel owner might give for why they want to allow the policy of overbooking, making up for potential lost revenue is probably the first one they will mention. Cancellations are always going to happen in the hotel industry. It’s unfortunate but unavoidable. It makes sense that a hotel owner would want to offset those financial losses.
If a cancellation happens far enough in advance, then you might have enough time to put the room up for sale again. If someone cancels at the last minute, this is impossible.
If you overbook, though, you have a backup customer who you can instantly install in the room of the individual who canceled. Overbooking is a way to increase revenue and fill as many of your available rooms as possible on any given night.
It also makes sense, as a hotel owner, that you want to achieve 100% occupancy each night, or as close to it as possible. If you have last-minute cancellations or no-shows, that is not going to happen.
However, if you overbook, then the chances are much higher that you can achieve 100% occupancy, or close to it. While you might not be able to sell every one of your rooms each night, overbooking is a measure that you can end up helping many of your key performance indicators (KPIs). You can regard KPIs as measuring sticks that reveal the health of your hotel.
Now, let’s move on to some challenges or potential disadvantages if you decide you’re interested in intentionally overbooking your hotel’s rooms, as well as some possible solutions.
Some hotels have mostly automated the check-in process at this point, while others are still exclusively using a human desk staff. Either way, you want the guests to be able to check in smoothly.
If a guest arrives and finds out that they don’t have a room when they thought they did, they’re liable to take it out on the front desk staff. A guest might become belligerent if they learn that their room has been given away. Even if your hotel has an automated check-in system, the guest will doubtless demand to speak to a human staff member if they learn there is not a room waiting for them when they were assured there would be.
It’s hard on your front desk staff if they have to placate an angry customer. The most likely solution to avoid a frustrated customer taking their emotions out on a front desk employee is to use data to figure out the best overbooking policy.
The overbooking technique is based on data. This should include the historical number of cancellations, no-shows, walk-ins, extended stays, and early departures. A proper strategy is based on many factors and is never done arbitrarily.
You can measure the risk of overbooking for a your hotel based on the following formula:
As a hotel owner, you must also consider your business’s online reputation. Reviews matter. You can just imagine what some of them will be like if you overbook too often and don’t have rooms for your guests, even after sending them confirmation saying their room would be ready when they arrived.
If someone is doing research into your hotel and they see many poor reviews saying that rooms were not available that were promised, it’s almost a certainty that you will lose revenue. There are a couple of ways to potentially counteract these circumstances.
The first is to once again study data on your hotel that you have accumulated over a given length of time. This data should tell you precisely how much you can overbook without getting into a danger zone where you’re not likely to have enough rooms available. If you don’t overextend yourself, the data might indicate that a little overbooking should be fine.
The other thing you should do is collaborate with another hotel. This is mandatory for all places of lodging.
If you have overbooked, whether intentionally or unintentionally, and the customer arrives, there are laws in place that mandate you host the guest in another hotel of the same or of a higher category than yours. Even if you are competing with that other hotel, it doesn’t mean you can’t have a working partnership that is beneficial to both of you.
This way, you can send a guest to another hotel nearby if it happens that you have overbooked beyond your hotel’s capacity to handle the overflow. This can help you avoid those terrible online reviews that can dent your hotel’s reputation.
As a hotelier, you always want to try and avoid guests having a poor experience with you. Even if they don’t post about it online, they might talk to family members and friends. The chances are minimal that these individuals will book with your hotel if there is poor word of mouth surrounding it.
Having a relationship with a nearby hotel is often the solution there as well. It’s not ideal, though, which incentivizes only overbooking to a certain point and not going over that threshold. If you do, then it’s going to become more and more difficult to placate your frustrated guests.
Now, let’s talk a little more about what you can do to safely use but not overuse the policy of overbooking as a hotelier.
If you are intentionally overbooking, it’s best that your hotel staff should know that. If it does happen that you have overbooked to the point where you need to send a guest to another hotel, you should train your front desk employees on how they should handle that.
You’re going to need to teach them to offer generous compensation and to apologize profusely if something like this ever happens. They may need to de-escalate if they’re dealing with a particularly frustrated guest.
If you offer a lavish enough compensation package when sending a guest to a different hotel, then hopefully, they will not be too upset. Still, it’s best to avoid these situations whenever possible, which leads us to our next point.
As we mentioned earlier, gathering relevant data and using it correctly is always going to be key if you plan to intentionally overbook your hotel’s rooms. This is why you should strongly consider getting a business intelligence platform that can provide you with that data.
These platforms are usually offered as SaaS, or software as a service. In other words, you’re paying for the rental of this software rather than purchasing it. You can usually look into a subscription service that you can pay for each month, quarter, or year.
When you start to use the business intelligence platform, you will start to see patterns in early departures, overstays, cancellations, no-shows, etc. This information can be tremendously valuable to your hotel.
Once you start to analyze these trends, you can begin to put an overbooking policy in place that makes the most sense for your hotel. When it comes to places of lodging, there is no one-size-fits-all policy, and that certainly applies to overbooking. You need to tailor your policy according to the data, and the right business intelligence platform can help you do that.
You will also most likely want to utilize a booking engine for your hotel. It should have an integrated payment system as well.
This is a way of enhancing the whole process of the guest booking experience. A guest can book a room and pre-pay for a reservation via your website if they’d like to.
This helps your overbooking strategy in the sense that a hotel booking engine makes it less likely you will have guests backing out of their bookings at the last minute. If your booking engine gently encourages guests to pre-pay for rooms, that can sometimes mean the difference in whether they show up or not.
The third thing you’ll likely want to use when you’re thinking about overbookings is a channel manager. It is a powerful tool, and one that can handle inventory updates for you in real time.
When a reservation comes in, the channel manager should instantly update your room listings among all of the sales channels you are using. The channel manager works in conjunction with your Property Management System, or PMS.
With a channel manager, you can set overbooking limits and better control all of your distribution channels. This ensures that you will never get outside of the comfort zone for overbooking that you have set up based on the data you have gathered.
It’s clear that there is some element of risk that goes along with intentionally overbooking the rooms in your hotel. Those are mainly associated with things like poor guest reviews or unhappy customers that we mentioned earlier.
However, there are also the possible benefits that we listed, most notably the likelihood of maximizing revenue and getting a higher room occupancy rate. Those might be tempting enough for you to engage in this practice, especially if you’re seeing a lot of empty rooms due to last-minute cancellations or no-shows.
It will be every hotel owner’s prerogative whether they want to use intentional overbooking a little, a lot, or not at all. If it is something that interests you, though, you should consider the various safeguards that we mentioned in the article.
You can do things like partnering with another hotel if you’ve overbooked beyond your capacity. You can use data as a way of finding a sweet spot in your overbooking policy. When you do so, you make it more likely that your foray into overbooking will not end with a bunch of unhappy customers and front desk staff.
Hotel overbooking, while carrying some degree of risk, can still be a highly beneficial practice for hoteliers. It all depends on the precision with which you handle it.
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