Work out overbooking level instantly with clear inputs, formula shown and shareable results.
Overbooking is a newsvendor problem: the critical ratio compares the cost of an empty room with the cost of walking a guest. Where walking is expensive relative to lost revenue, the optimal overbooking level is well below the expected number of no-shows.
Critical ratio
Critical ratio = Lost revenue per empty room / (Lost revenue + Walk cost)
Overbooking level
Overbook = Expected no-shows x Critical ratio
The alternative accommodation, transport, compensation and the lasting reputational cost. It is usually several times the room rate.
Yes. On a night with no alternative accommodation available in the market, the walk cost rises sharply and overbooking should fall to zero.