As we know, overselling (or overbooking) is a technique used in Revenue Management to offset
anticipated cancellations and no-shows (wiki has an article on this subject). In other words, if you
expect 2 cancellations and 1 no-show – you oversell by 3. That’s the optimal behavior that
maximizes revenue. Pretty simple, right?
Most popular mistake that leads to walks is picking the wrong time to overbook. As mentioned above, overbooking is designed to offset cancellations and no-shows. Let’s ask ourselves: what is the main difference between those two occurrences? It is timing.
- cancellations can happen at any point in time, starting from 56 weeks before arrival (standard allowed lead time for transient bookings) until the end of the cancelation deadline
- no-shows always happen on the last day
Thus, we need to separate 2 different overbooking techniques: those that address cancelations and those that address no-shows.
When anticipating cancelations, in order to maximize your revenue to its highest potential, overselling needs to happen at the peak of demand.