Unlocking hidden potential: Understanding and maximizing Ancillary Revenue in Hospitality

As I recently released my book "Mastering hospitality ancillary revenue", I'm starting a series of articles focusing on the topic, going through what is shared on the book.

So I believe it makes sense to start from the basics: Understanding ancillary revenue. Because ancillary revenue has become a critical focus in the hospitality industry, driving profits and elevating guest experiences. As the landscape continues to evolve, hotels and resorts must look beyond traditional revenue streams and embrace the power of additional services to thrive in today’s competitive market. In this article, we’ll explore key concepts from Chapter 1 "Understanding Ancillary Revenue" of my book, and delve into strategies to help hospitality businesses unlock the full potential of ancillary services.

What is Ancillary Revenue?

Simply put, ancillary revenue refers to income generated from secondary services that complement a hotel's primary offerings—usually room stays. These additional sources of revenue include everything from in-room dining, spa treatments, and minibar sales to experiences like guided tours or even laundry services. However, the debate over whether food and beverage (F&B) revenue falls into this category continues. Some argue that all non-room revenue should be considered ancillary, while others believe that only the “extras” (e.g., minibar sales) truly qualify.

No matter how you define it, the importance of ancillary revenue cannot be overstated. It not only diversifies income sources but also enhances guest satisfaction, making their experience richer and more memorable. Moreover, in certain hotels, ancillary revenue can contribute up to 50% of total revenue, a figure that should not be overlooked.

The real value of Ancillary Revenue

Let’s break down some of the reasons why ancillary revenue is essential for a successful hospitality operation:

1. Revenue diversification: By relying on a variety of services beyond room stays, hotels become more financially resilient, especially during off-peak seasons. When room occupancy dips, ancillary services like the spa or restaurants can help maintain a steady stream of income.
2. Guest satisfaction and loyalty: Offering personalized, well-curated ancillary services can make a guest's stay memorable and enhance long-term loyalty. If guests leave a property not only having enjoyed their stay but also having taken advantage of additional services they didn’t expect, they are more likely to return.
3. Competitive differentiation: Ancillary services provide a unique way to stand out from competitors. In a crowded market, hotels can differentiate themselves by offering unique and high-quality experiences, from exclusive tours to curated wellness packages.

Scenario-based approach: The power of service

Consider the following example from my book, which highlights the difference between merely providing a service and elevating it through proactive engagement.

• Scenario 1: A family sits down at a restaurant and a waiter merely points to a QR code for the menu, returning to take the order after a few minutes.
• Scenario 2: The same family sits down, but this time the waiter asks if they are celebrating something special, starts a conversation about their preferences, suggests drinks, and eventually makes tailored menu recommendations.

In the second scenario, the waiter’s engagement with the family opens opportunities for upselling, creates a more personalized experience, and leads to higher guest satisfaction. This example illustrates the same principle in ancillary revenue management: businesses must go beyond being passive order-takers to become proactive revenue generators.

Lessons from the airline industry

The hospitality industry can learn a great deal from how airlines pioneered ancillary revenue. From checked baggage fees to in-flight meals, airlines successfully unbundled services, offering them as optional add-ons. This approach not only allowed airlines to offer more competitive base fares but also generated substantial ancillary income.

Hotels have adopted similar strategies in recent years, leveraging data and customer insights to create tailored offers. For instance, many hotels now use dynamic pricing for services like spa treatments or menu items, adjusting prices based on demand. By introducing flexible, data-driven models, hotels are able to boost their ancillary income while simultaneously catering to guest preferences.

Key components of modern ancillary revenue strategies

As hotels continue to explore new ways to diversify revenue, here are four essential components shaping the modern landscape of ancillary services:

1. Personalization: The ability to tailor services to individual guest preferences is a game-changer. Today’s tech-savvy guests expect offers and services that reflect their unique tastes and needs. Unfortunately, many hotels are still lagging in this area, often lacking comprehensive CRM systems to track guest preferences and offer hyper-personalized experiences. However, as more properties adopt advanced guest management technologies, the opportunity to upsell personalized experiences will grow.
2. Technology Integration: Technology is crucial in streamlining the guest experience and maximizing revenue opportunities. For example, mobile apps allow guests to order room service, book spa treatments, or access exclusive offers. Marriott’s Bonvoy app is a great example of how technology enhances convenience while increasing ancillary revenue opportunities.
3. Health and Wellness: With the growing demand for wellness services, hotels are offering more than just spa treatments. From fitness classes to mental well-being programs, wellness offerings have expanded. These services not only meet guest expectations but also contribute significantly to ancillary revenue streams.
4. Sustainability: Hotels are increasingly integrating eco-friendly practices into their ancillary offerings. Whether it’s promoting sustainable tourism or offering environmentally friendly products, green initiatives are now a key factor in attracting eco-conscious travelers. This approach also strengthens a hotel’s brand image and can lead to higher occupancy and loyalty rates.

The role of technology in driving ancillary Revenue

Technology and data analytics play an indispensable role in the evolution of ancillary revenue. Artificial intelligence (AI), machine learning, and mobile apps enable hotels to gather insights into guest behavior, personalize their offerings, and streamline booking processes. AI-powered chatbots, for example, can provide tailored service recommendations based on guest history, boosting both convenience and satisfaction.

Additionally, platforms like Oaky help hotels upsell before guests even arrive by offering them customized options for upgrades or experiences. This ensures that guests can enhance their stay while allowing the hotel to maximize revenue from services they may not have been able to sell otherwise.

Upselling: A skill to be mastered

One of the most effective ways to boost ancillary revenue is through upselling. This is where the human element plays a critical role. Staff need to be trained to recognize opportunities and communicate the value of additional services in a way that feels natural and personalized. For example, a well-timed offer for a room upgrade during check-in, or suggesting a special spa package during dinner, can lead to substantial increases in spend per guest.

Effective upselling is not about pushing services but about enhancing the guest experience. When done correctly, it leaves the guest feeling as though they’ve received special treatment, further strengthening their loyalty to the hotel.

Conclusion

Ancillary revenue is no longer just an afterthought; it’s a core strategy for success in the hospitality industry. By diversifying income streams, embracing personalization, leveraging technology, and training staff to excel at upselling, hotels can optimize both guest satisfaction and profitability. As the industry evolves, those who master the art and science of ancillary revenue will be the ones to thrive.