During the Pandemic, hotels tried to generate new revenue streams. Reducing free upgrades was analyzed and new applications were created to help hotels improve revenue.
Most upgrades were – and still are – given free of charge to guests because we usually overbook the lowest category of rooms. Most hotels apply this tactic at least until they can cover the next highest room category. Overbooking is a tactic that allows us to keep availability open for a longer period of time on all channels.
Giving free upgrades is considered by many to be an investment for the hotel, as there is a good chance that the favored guests will write good reviews. However, it is impossible to quantify the positive financial impact of each free upgrade.
But what we can easily measure is how much each free upgrade costs in lost revenue. An upgrade can mean losing out on € 40 (or more) for a single-night booking. In this case – assuming we offer only one free upgrade per day – the value of the upgrades would reach € 1200 / month or € 14,400 / year !!! In the scenario of two free upgrades per day, it is easy to calculate the amount of your lost revenue. In a relatively large hotel, the amount can easily exceed well over € 50,000 / year.
What options are there to reduce the number of free upgrades offered?
Option 1: Upselling before arrival by phone or mail
This process is usually performed by large-scale hotels or hotel chains and requires a basic level of organization. The greatest disadvantage of this option is the man-hours that will be spent on it. Most of the time our client will need some time to decide, which translates into a second and possibly third round of communication.
Option 2: Upselling on arrival
For decades, upselling to newly arriving guests has been the most popular practice, i.e. the offering of purchasable upgrades to guests at check-in. It works, as it brings results, but it has several disadvantages when compared to an automated solution:
- If it is not done properly, any attempt to sell can make a visitor feel pressured and uncomfortable. Also, please consider that they may not have the time or clarity (after a long journey) to realize the important details and benefits of the upgraded room we offer, and end up not knowing exactly what they are buying. There is a high danger of degrading their experience before they even enter the room.
- For large numbers of guests who now prefer to check-in online, we do not have the ability to apply this practice; they simply will bypass the Reception upon arrival.
- After selling an upgrade to guests at the Reception area, it can become quite difficult to resell the standard room that has just been released.
Option 3: Upselling before arrival with an automated application
Now, imagine an application that sends pre-arrival emails, a few days before the arrival of guests, inviting them to set themselves the amount they are willing to pay in order to upgrade their room. An application that, 24 hours before arrival, automatically upgrades the guests who filled in a price, informs them whether they managed to get the upgrade or not, and also updates room availability in the Booking Engine! Take a minute and think about how many benefits this type of platform can provide:
- Much higher Conversion Rates than the upselling performed by hotel staff: Upstay has a conversion rate ranging from 12% to 15% because it uses attractive images, and descriptions and especially provides guests with the ability to set the amount they want to spend on the upgrade.
- Improved guest experience: Travelers receive offers directly in their emails; they have time to examine them and upgrade if and when they wish to. Then, their upgrade is automatically confirmed – so simple.
- Better Planning: The booking team knows which room to prepare, there are no last-minute changes and importantly, there is sufficient time for the vacated rooms to be resold.
- Higher ADR: Compared to the free upgrade scenario, it is obvious that selling upgrades will have a positive effect on this indicator. Additionally, the ability to resell lower-end rooms, which are almost always sold much more easily and quickly than Premiums, will also help improve ADR.
- Increase Efficiency: Full automation means that staff members have more time for other important tasks.
- Additional opportunities for upselling & cross-selling even when operating at very high occupancy: UpStay now has the ability to suggest the sale of other services/products before arrival, when no premium rooms are available.
Feel free to calculate how many Free Upgrades you offer in your hotel every day, and then click here to meet UpStay!
N. Giokas is a Mathematician and has been working in the Hospitality Industry since 2008. He holds a master's degree in Business Administration and has worked/collaborated with most technology companies in Greece: Protel, Fidelio/Opera, WebHotelier, RevitUp. He also teaches Revenue Management & Digital Marketing at BCA. Since December 2019 he is part of the UpStay team, as Business Development Manager for Greece and Cyprus.