Cancellation impact on net revenue

A 20% cancellation rate sounds tolerable until you do the math on what it costs you. The losses are not the cancellations themselves — those are bookings that didn't happen. The losses are the inventory those cancellations held and the rooms they prevented you from re-selling at full rate.

The mechanics

A guest books December 12 on November 1. That booking holds one room of inventory for 41 days. On December 8, they cancel. You now have a vacant room on December 12, with 4 days to re-sell it. The market at 4 days out is thinner than the market at 41 days out — you re-sell at maybe 80% of the original rate, or you don't re-sell at all.

Multiply that across thousands of bookings per year and the cancellation channel becomes one of the largest hidden revenue losses in a hotel's P&L. A property tracking only "did we hit budget" misses the leak entirely.

What cancellation policy actually controls

What to actually do

Run a 90-day comparison: same property, two cancellation policies in market simultaneously (free cancellation on one rate plan, non-refundable on another with a 10-15% discount). Measure: roomnights stayed, ADR realized, total net revenue per inventory-day held. The non-refundable rate almost always wins on net revenue once cancellation drag is factored in. Most properties have not run this comparison.

The OTA side of it

Booking.com defaults all new properties to free cancellation. Changing this in the extranet is a 60-second action that revenue managers postpone for years. The reason: KAM pressure ("free cancellation drives conversion, you'll lose 25% of bookings"). The reality: you'll lose 15% of bookings but gain 25% of net revenue. Do the math, not the narrative.