Ancillary Revenue Streams for Hotels

Ancillary Revenue Streams for Hotels: A Comprehensive Guide

The hospitality industry must constantly adapt to new market trends and customer needs, and relying solely on room sales is no longer enough.

To stay profitable and enhance the guest experience, hotels should incorporate additional sources of income, known as ancillary revenue. Between 2019 and 2022, ancillary revenue in the hotel industry grew by over 10% per year.

Find out how to earn more by offering guests extra services and amenities beyond the usual room and board. We’ll provide practical tips and ideas to help hoteliers tap into these profitable opportunities. Learn how to improve your guest experience and increase your earnings simultaneously.

The Main Source of Revenue for Hotels

Room sales have traditionally been hotels’ main source of revenue, serving as the backbone of their financial model.

A hotel’s profitability largely depends on its occupancy rates and the average daily rate (ADR) it can command.

  • Occupancy rates measure the percentage of available rooms occupied at any given time, directly impacting revenue and indicating demand levels.
  • ADR represents the average price a guest pays per room, influencing the overall income from room sales.

Both metrics illustrate a hotel’s financial health. High occupancy rates and a strong ADR suggest that a hotel is performing well, consistently attracting guests and maximizing its pricing strategy. Conversely, low figures in these areas could signal the need for strategic adjustments in marketing or pricing.

What is Ancillary Revenue?

Ancillary revenue is the income hotels generate from services and products beyond room sales. Forms of ancillary revenue for hotels may include everything from fees for late check-outs and room upgrades to revenue from in-house dining, spa services, and event hosting.

Ancillary revenue is increasingly important in the hospitality sector as it helps diversify income streams and reduces dependence on fluctuating room demand.

Hotels can enhance their financial stability and drive growth by tapping into ancillary services. Additional offerings increase overall revenue and provide guests with more enjoyable, memorable stays.

In fact, 81% of hoteliers expect a big service model shift between now and 2025, and 49% strongly agree that special amenities and upselling are critical to their revenue strategy. In turn, customers seem open to new pricing strategies that give them more choices throughout their stay.

Ancillary Revenue Streams for Hotels: An Exhaustive List

Hotels can tap into dozens of ancillary revenue streams, including:

On-property Offerings

On-property offerings are services and amenities provided within the hotel to improve the guest experience. Hotels can satisfy a wide range of guest needs and generate extra revenue by providing these services.

  • Food and Beverage Services: Upscale dining attracts guests looking for a high-end culinary experience in the comfort of the hotel. Room service provides convenience, appealing to those who prefer dining privately. Minibars offer snacks and beverages, generating additional income through convenience and impulse purchases.
  • Spa and Wellness Services: Massages, beauty treatments, and wellness workshops cater to guests seeking relaxation and rejuvenation during their stay.
  • Event Spaces: Hotels can generate significant revenue by hosting events like conferences, weddings, and special occasions.
  • Recreational Activities: Offering access to golf courses, swimming pools, guided tours, and classes enhances the guest experience and attracts diverse groups of travelers with different interests.

Technology-driven Solutions

Hotels are increasingly using technology to improve guest experiences and streamline operations. Tech features meet today’s digital demands and open up new revenue opportunities.

  • High-speed Internet Access: Charging for premium Wi-Fi services meets the needs of business travelers and tech-savvy guests who require reliable and fast internet connectivity.
  • In-room Entertainment: Providing pay-per-view movies and gaming consoles meets the needs of business travelers and tech-savvy guests who require reliable and fast internet connectivity.
  • Mobile App Services: App-based orders for dining, spa booking, and room cleaning provide greater convenience for guests.

Retail and Merchandising

Hotels often feature shops that sell local souvenirs and everyday essentials. Retail products offer convenience while providing the hotel with additional income sources.

  • Gift Shops: Selling souvenirs, local products, and branded merchandise capitalizes on tourists’ desire to bring home memories of their travels while also promoting local culture and hotel branding.
  • In-hotel Mini Markets: Offering convenience items, snacks, and travel essentials serve guests’ immediate needs, enhancing their comfort and satisfaction.

Transportation and Parking

Transportation and parking services cater to guests’ travel needs and can provide significant revenue sources, especially in areas where public transport is scarce.

  • Valet Parking and Self-Parking: These services cater to guests with vehicles, offering convenience at a premium, and can be a significant revenue stream in urban or crowded areas.
  • Electric Vehicle (EV) Charging Stations: Offering paid charging services attracts eco-conscious travelers and those with electric vehicles, providing a modern amenity that supports sustainable practices.
  • Shuttle Services: Providing airport transfers and access to local attractions adds value to guest services, providing convenience and safety.
  • Rental Car Services: Partnering with rental car companies or offering on-site car rental services provides guests with additional transportation options, especially for those who prefer to explore the area independently or require a vehicle for business purposes.

Partnerships and Sponsored Activities

Hotels can enhance their offerings and generate extra income through partnerships and sponsored activities. Working with tour operators to offer exclusive local trips or hosting events sponsored by brands provides guests with unique experiences while generating additional income.

  • Tour Operator Partnerships: Hotels can earn commissions by partnering with local tour operators, offering guests curated experiences that enhance their stay.
  • Sponsored Events and Promotions: Hosting brand-sponsored events can introduce guests to unique experiences while providing a platform for brands to engage with a captive audience.

New and Emerging Streams

Hotels are exploring new revenue streams that align with contemporary trends and guest preferences. Innovative services cater to specific guest niches and help set a hotel apart from competitors.

  • Pet-Friendly Services: Catering to guests traveling with pets through services like pet sitting, grooming, and welcome kits can tap into the growing trend of pet-friendly travel.
  • Environmental Sustainability Initiatives: Offering eco-friendly rooms or carbon offsetting attracts eco-conscious guests and promotes a sustainable brand image.
  • Co-working Spaces: Renting out spaces for digital nomads and local professionals meets the needs of a growing segment of travelers who blend work and leisure.
  • Subscription Services: Creating membership models for discounts, upgrades, and exclusive services can build loyalty and recurring revenue from returning guests.

Continued Conversation: Parking as Ancillary Revenue

Parking services are vital ancillary revenue sources for hotels, regardless of location. Parking areas are a limited asset, which offers a key opportunity to generate additional revenue. Two of the most common parking services hotels can offer to generate ancillary revenue are valet parking (park and retrieve vehicles for guests) and self-parking (allow guests to park in the lot for a fee).

Hotels use revenue per available space (RevPAS) to measure and maximize the profitability of parking spaces. They calculate the average revenue generated from each parking space to make data-driven decisions on pricing and promotions.

At Towne Park, we use a metric called RevPAR (Revenue per Available Room) to measure parking performance for our hotel partners. RevPAR is calculated by dividing the total parking revenue by the total number of available rooms in the hotel.

This metric helps us and our hotel partners assess the effectiveness of our parking revenue strategies and identify opportunities for improvement. By monitoring RevPAR, we can make informed decisions on pricing, promotions, and operational efficiency to optimize parking revenue and enhance the overall guest experience.

To further optimize parking revenue, hotels can implement several strategic approaches:

  • Demand Generation Distribute unused parking spaces via e-commerce aggregators to meet the demand of transient parkers, especially in areas near major airports, downtown metropolitan areas, event centers, and major points of interest.
  • Dynamic Pricing: Adjust parking rates based on demand, time of day, and local events. Charge premium rates during high-demand periods, and opt for lower rates during off-peak times to attract more guests.
  • Loyalty Programs: Offer discounted or complimentary parking as a benefit of hotel loyalty programs to incentivize repeat visits.
  • Technology Integration: Automated payment systems, real-time space availability updates, and mobile app integrations reduce wait times and simplify the payment process. Advanced systems also help manage dynamic pricing models and provide valuable data for better decision-making.

To maximize parking as an ancillary revenue stream, hotels must consider several nuances, including location, market, and local competition, to select suitable rates and services.

Conclusion

Ancillary revenue streams are essential for hotels, providing significant opportunities to increase profits and enhance the overall guest experience. The most effective ancillary streams include various services and amenities like spas, restaurants, and parking/transportation services.

Hoteliers should actively seek out and embrace a variety of these revenue sources. By focusing on creativity and aligning offerings with guests’ needs, hotels can boost their income and enhance guest satisfaction. By diversifying their revenue streams, hotels can secure financial stability and create compelling, enjoyable experiences that keep guests returning.

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