Thought Leadership

high margins

Due to the ongoing pandemic, hotels have lost several months’ worth of business. The reopening and rebound period are slower than initially expected and occupancy levels will take time to recover to pre-crisis levels. As a consequence, it’s critical to make the most of every booking to maximize average spend and revenue. Digital upselling can be a quick and easy way to both improve your guests’ experience while simultaneously giving your revenue that much needed boost.

What to sell?

This question may appear to be basic but not every upsell…sells. For many hoteliers, the reality is that typically upselling fails to live up to its promise. You may have lots of products and services available, yet no one appears to be buying them. Flowers, Champagne and chocolates, wine, transport or transfers, bike rental etc. are the upsells that get pushed time and time again. As a consumer, you would deduce from this repeated experience is that these ancillaries must be the most popular and successful in the industry, right? Wrong. According to the 2020 Hospitality Upselling Report, on-site wellness, room upgrades, and restaurants generate the most ancillary revenue, 26.7%, 23.8%, and 17.5% respectively. Car & bike rental, children’s activities, and flowers together account only for 1.2% of all ancillary revenue.

And while the tendency to showcase a plethora of products, services and upgrades, in actuality this strategy is more often than not unsuccessful. Offering a slew of untargeted offers is confusing, overwhelming and frustrating for guests. This ultimately results in low conversion because your offers are too generic. Once a sale is made, a number of real problems surface – from very low margins, to connecting with multiple systems and fulfilment issues. Many hoteliers are left wondering if it an upsell strategy is even worthwhile.

The answer is, Yes. The strong growth of ancillary revenue of 26% stands as proof that it is possible to sell to guests and it is one of the major revenue streams in the hospitality industry. When done right, instead of being painful and barely profitable, upselling can be a quick, easy source of ancillary revenue. But be smart.

Go where the margins are

Let’s illustrate an example of the perception and reality of unwise upselling. While a bike rental service may contribute to the guests’ perception on the environmental quality and friendliness of your hotel, it won’t necessarily reap the financial gain you are looking for. Margins for this type of upsell are typically always low. Not only do you have to invest in the bikes and store them onsite, or you need to work with a third party, thereby lowering your profit even more. Plus, their use is also seasonal and dependent on the weather. At end the day, more dollars are spent fulfilling upsells like this, than actually making a meaningful yield.

The easiest way to upsell is to look at what you already have that can be fulfilled without requiring any work on your part. That’s why room upgrades, early check-in and late departure are by far the most effective upsells in a hotel business. The rooms are present, there is no need for additional arrangements, and they have the highest margin. Consequently, there’s no additional cost associated with this revenue. All revenue generated drops to your bottom line.

Digital Upselling: An Efficient Way to Upsell

Many hotels that do have an upselling program in place, but it is often limited to guests checking in at the reception. These properties are losing out. Why? The window for conversion is very small. Ideally you want to upsell prior to arrival when the guest has more time to consider.

But hotels have avoided this (or have instituted clunky semi-manual band-aid approaches) because room upgrades, early check-in and late departure are data dependent. Room availability variables will dynamically impact such upselling.

That’s why an automated digital upselling platform is your best answer. You can focus on high margin upsells, the offers go to the right person at the right time, and you barely have to lift a finger.  You will not only increase conversion rate and your ADR, but will you’ll be offering a positive and satisfying experience for the guest.

So, if you are looking to drive more revenue on your COVID recovery, go where the margins are. It’s really easy to begin with room upgrades, early check-in and late departure. Assuming your vendor has a two-way connection to your PMS, these upsell items fulfil automatically and yield a very high margin. Forgo the full-sized à la carte menu of items that cost much more to do, are hard to automate, fulfill and have little or no margin. Instead, focus on transparent automated upselling – a win-win on for both the you and the customer.

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