As more hotels consider total revenue management, ancillary revenue is proving to be a vital component in property profit.
Ancillary revenue generation has been a big revenue generator for airlines for years, with budget carriers charging for add-ons such as inflight meals, baggage and extra leg room.
How can hotels emulate this success?
Ancillary revenue is any revenue that your hotel creates that is not rooms related. That could include:
- Food & Beverage
It can also extend to services or commodities that you are selling on behalf of a third party. For example, city tours or local produce from artisan creators. It can also include souvenir sales related to your hotel. For example, many properties now offer branded teddy bears or other gifts to take home.
Discover more about ancillary revenue in our Industry Insights video: How do you drive ancillary revenue? Watch now.
Ancillary revenue can even extend to upsells or cross sells, for example providing a late check out, a room type upgrade or a package upgrade, such as dinner, bed and breakfast.
“Ancillary revenue is the art or science of upselling and cross selling,” says Emmanuel Lacour, Brand Director, edyn Hospitality
“For early check in, this is maybe two hours more time at the hotel. So, for me, it should be within 10% of your room rate,” Lacour recommends, adding: “How you price it will be absolutely crucial to make it a success.”
Jutta Moore, Managing Director of Moore Hotel Consulting, says it’s important to make ancillaries easy for the guest to buy. “Package them up, have them as add-ons and have them easily available and easily promoted within the property,” she says.
However, Moore does have a word of caution: “If you start selling these products online you may need to go into some testing to see how it works, because if you get too excited selling everything else you may lose out on the actual booking confirmation.”
Andy Leung, Director of Revenue and E-Commerce, Hodson Bay Group, takes a reverse look at ancillaries. He often uses services and products in his properties to sell rooms. His tactic is to sometimes use meeting space to help bolster rooms occupancy, setting restrictions on meeting space that is day-only during low season.
“The old definition of rooms supports food and beverage and the spa could be flipped around. That meeting room or wedding can support upstairs as well. That's what we found in our country hotels,” he says.
In times when room rates may be depressed and hotel guests don’t want to move too far from the property, ancillary sales can provide a much-needed boost to your bottom line.
What’s more, a well-crafted promotion that upsells that bottle of wine in the room for that anniversary mini-break or the departing teddy bear gift at the end of the vacation can increase guest satisfaction, lead to more favourable online reviews and, ultimately, have a positive impact on room rates and demand going forward.