A survey by Dohop revealed that one in five online bookings result in cancellations. That is a crazy figure! If you’re a hotel owner who has a high cancellation rate, you need to read this post.
We will show you how to combat this trend and decrease your cancellations.
Set up non-refundable room rates on Booking.com and Expedia
Our theory as to why cancellation rates are so high has to do with the sites that host hotel openings. The majority of people that book online use either Booking.com, Expedia, or Laterooms to book their stays. All of these companies pressure the hotels and guesthouses that they work with to offer a 48-hour cancellation policy. That means that if I were to book a room for next month on Booking.com, I would have until two days before my arrival to cancel with no penalties and no price to pay. This can often lead to frustration for the business owner.
Depending on the time of the year, this could make it very hard for owners to re-sell rooms. Of course, there is the option to extend the cancellation policy to 72 hours, a week, or even a month; however, with most other guesthouses offering the 48-hour policy, consumers are far more likely to choose a shorter cancellation policy.
To combat high cancellation rates, OTAs now offer all of their partners the ability to offer a “non-refundable rate.”
As you can see from the picture above, the customer now gets two options: 1) they can book with you and choose free cancellation coverage, or 2) they can book at a cheaper, non-refundable room rate. These options give the customer and you the best of both worlds.
The important thing to remember here is this: when you set up your non-refundable room rate, you want to give the customer a discounted option that will appeal to the guest but not put you out of pocket. The average discount is 5% to 10%; for our clients, we recommend offering a 7% discount. (Note: you can alter this at any time by logging into your booking channel owner portal.)
A benefit to guests is that they know they are locked into an agreement that they are going to stay at your place. Unlike at a hotel that offers a 48-hour cancellation policy, guests know that they are making a commitment to stay when they book with you, and this offers them confidence and comfort. For owners, the primary benefit is that you get a good idea about upcoming room bookings and are able to plan for the weeks and months ahead.
If you offer a non-refundable room rate, I recommend not raising the commission that you pay to OTAs from the default level. We published a post about working with OTAs – you can check that out here. Remember, you’re already taking a 5% to 10% hit on your profit with the non-refundable rate, so you don’t want to add another 17% to 20% commission on top of that. Before making any decision, I recommend working out how much your costs are for each room booking and making a decision based on which option will give you the most profit. If need be, you can raise the rates of your rooms.
If non-refundable rates don’t appeal to you, then try reaching out to your customers at the point of booking. A quick text or e-mail saying that you are looking forward to meeting them and asking if they have any questions about their stay or your town is a great way to build rapport and engage your customers. This option costs nothing, and you will appear to be going above and beyond to give their stay a personal feel rather than the feel of a faceless business.
Please let us know your thoughts or feelings about non-refundable rates. If you want to set up a non-refundable rate and want some help, please e-mail me at firstname.lastname@example.org. Alternatively, you can check out training videos available at Boostly.