Overbooking Your Hotel: Everything You Need To Know

A profitable strategy or a hotelier’s nightmare? You decide…

Overbooking strategies for your hotel can be a fairly divisive topic within the hospitality industry. On the one hand, it can be an incredibly useful tool to maximise occupancy rate, drive up bookings and increase those profits.

On the other hand, it can tank your reputation, cost you money to resituate overbooked guests and result in an overall net loss.

So it’s easy to see why it’s a hotly contested talking point.

That’s why we decided to give you all the facts. To let you see exactly what an overbooking strategy consists of, the risks and other factors involved, and how to make the most out of overbooking if you do choose to go ahead with the strategy.

Let’s begin.

---

What is Hotel Overbooking?

Should You Overbook Your Hotel?

Pros and Cons to Overbooking

How to Avoid Overbooking

How to Optimise Your Hotel Overbooking Strategy

Our Thoughts

---

What is Hotel Overbooking?

It’s exactly what it says on the tin. Overbooking is the when your Rooms Available is less than the number of bookings you have at a certain period of time. Or you can also think of it as having over 100% occupancy.

Far from expecting separate guests to share beds for the night, hotels do this for one reason: cancellations.

Thanks to OTAs actively increasing cancellation rates for their own reasons, cancellations rates are at an all time high. This has only reinforced hotels to adopt overbooking strategies in order to maximise occupancy under the impression that a number of bookings will cancel before their stay arrives.

It’s for the same reason that airlines overbook on their flights. Every empty seat (or in the case of hotels: room) costs money. It’s an asset that brings down profits unless it is being used. 

It’s no surprise that hoteliers are desperate to maximise that occupancy rate and boost profits.

---

Should You Overbook Your Hotel?

The only person who can properly answer that question is you.

• Is your occupancy rate low?
• Do you suffer from high cancellation rates?
• Could your profits do with a bit of a boost?

If you answered yes to any of these questions, then you could probably benefit from a good overbooking strategy for your hotel. 

In all honesty, we recommended that all hotels should overbook their rooms. A smart strategy will vastly increase your occupancy rate, yet not run the risks of a failed overbooking strategy. For us, the only question is the scale of your overbooking strategy. 

---

Pros and Cons to Overbooking Your Hotel

We’ve already briefly covered some of the various advantages of a successful hotel overbooking strategy, but now we’ll breakdown exactly what it can bring to your hotel when done correctly.
Then we’ll focus on what happens if your overbooking strategy goes wrong.

Overbooking Advantages:

• Potential to achieve 100% occupancy rates
• Maximise your potential revenue from bookings
• Increased profitability optimises your operations
• Allows for long-term increases in profits and opportunities for reinvestment
• Relatively low-risk method to increase profits
• Overbooking risks decrease with continued efforts and data extrapolation

Overbooking Disadvantages:

With a good overbooking strategy, you won’t suffer these disadvantages. They are only applicable for hoteliers who mismanage their overbooking strategies.

• Negative guest reviews from overbooked guests
• Relocating guests / compensation may be more expensive 
• Multiple negative reviews reduce your online reputation
• Loss of bookings as review forums may deter potential guests who research your hotel 
• Reputation may actively promote your competitor hotels

So now, a hotelier like yourself is faced with two choices: how to avoid overbooking, and how to optimise your overbooking strategy. 

We’ll examine both.

---

How to Avoid Overbooking

Your primary tools in order to avoid overbooking at your hotel are your PMS and your Channel Manager.

Property Management System (PMS)

Your PMS is a piece of software either on-premises or cloud-based that allows you to do a number of things including:

• Check room status
• Add new reservations
• Generate reports
• Create invoices
• Check guest arrival / departure times
• Record OTA reservations with a click of a button

Alongside many other options (depending upon the software that you have installed). However, in order to avoid overbookings, you should also integrate your PMS with your Channel Manager.

Channel Manager

Your Channel Manager is the organiser that you always needed. It is a piece of software that coordinates and, in real-time, synchronises all of your booking channels. We highly suggest SiteMinder:

---

---

The moment a successful booking is made (either via direct booking or OTA) your channel manager will immediately update your rooms availability across all of your channels. Using this, you’ll never overbook your rooms again. 

Unless you deliberately want to of course. But then we have to talk about optimising that strategy.

---

How to Optimise Your Hotel Overbooking Strategy

There are a few steps that you can take to create an effective overbooking strategy:

Overbooking Cap

Overbooking gone wild simply doesn’t work. It requires incredibly careful planning and preparation, and part of that includes enforcing a solid cap on your overbooking values. 

This will vary based on your hotel and the cancellation rates that you typically experience. But if you don’t enforce a solid cap, overbookings can end up costing you more than you’ll gain by having 100% occupancy rates.

Type of Hotel Guest

Not all guests are created equally. 

While some guests may be understanding in the case of overbooking your hotel (as long as you make a sufficient apology), other guests will not. Therefore, as you calculate your overbookings you must remember to not overbook certain types of guests:

• Frequently returning guests
• Families
• VIP guests
• Loyalty program members
• Guests who request late check-in times
• Guests with additional needs

These guests are an absolute no-go when it comes to overbooking, and you should always prioritise the needs of these guests first. An irritated review from a disgruntled guest is one thing, however alienating a loyalty program member or VIP guest is a shortcut to scathing reviews that attract the kind of attention you don’t want on your online reputation.

Hotel Partners

It’s natural to want to outdo your compset, believe us, we want that for you too. However, when it comes to overbooking strategies it’s always good to have local connections.

If you can find another hotel with a similar star rating, service and price range to your own in the nearby vicinity, try cultivating a relationship with your rival managers. That doesn’t mean that you need to set rooms aside for any overbookings from their end, but an agreement that you will be each other’s first call for guest relocation is a great idea.

You may be able to fill up those last rooms if they’ve overbooked too much, and you can always subtly find out how their hotel management style treated overbooked guests! Anything you can find to improve your service pays off!

Make It Up To Your Guests 

When all is said and done, if you’ve overbooked your hotel – that’s on you. Despite your best efforts, anomalies happen all the time, so a week with fewer than normal cancellations is understandable.

But make reparations!

You may have relocated some guests to another hotel, but they were still your guests. Your reputation is on the line at this moment, so make sure to improve their stay as much as you can. Cover a meal at the restaurant, arrange a complimentary bottle of champagne, or arrange a room upgrade for them.

At this point, it’s about damage mitigation!

Study Your Data

As with all things related to your revenue management and rate plans, data is your best friend.

No, number-crunching isn’t the most glamorous part of a hotelier’s life, but if it helps you achieve 100% occupancy rates it’s worth it, right? So dig into that data, especially ones referring to your cancellation rates from OTAs.

Do certain times of year correlate with your cancellation rates? Do events in your city affect the rate at which you have cancelled bookings? These will define how much you overbook your hotel. With a little luck and a lot of studying, you can come up with the perfect overbooking strategy!

---

Our Thoughts

Overbooking strategies for hotels are an incredibly valuable method of increasing occupancy rates and boosting your profits. They have to be enacted carefully, and you need some fallback plans for the occasional slip-up, but overall they are absolutely worth the trouble.

With increased profits, you are free to reinvest back into the quality or services for your hotel in order to grow, optimise and take your hotel to the next level.

If you have any more questions, don’t hesitate to request a one-on-one meeting with one of our specialists. It’s completely free and we’re here to answer any questions you have about hotel marketing agencies. We’ll even throw in a hotel marketing audit prepared for that one-on-one meeting so we can provide you with an overview of where you are missing aspects of your hotel marketing!