How to forecast hotel revenue like a pro

Forecasting hotel demand can be a challenging thing to do — whether you’re a revenue manager, an operations manager or a hotel business manager. It can feel like a constantly moving target that’s nearly impossible to perfect.

NB: This is a viewpoint by Neil Corr, senior advisor, EMEA, at IDeaS.

Forecasting is, however, an incredibly valuable practice that helps hotels predict the time frames throughout the year that will bring them higher or lower than normal occupancy, demand and revenue.

A good demand forecast can help make the most out of the ‘peaks’ and better avoid the ‘valleys’ through proper room rate decisions, staff allocation, property maintenance and hotel operations.

Data and analytics are making this increasingly more efficient and effective, providing hotels with a better way to determine future marketing and pricing strategies to drive successful changes.

Looking holistically at forecasting, there are typically three types of forecasts in a hotel: operational, financial and revenue management.

Hotels often overlook the differences between these forecasts, but it is important to distinguish their differences because they are used for different functions.

An operational forecast is often used to manage the hotel’s resources such as: how many housekeepers will be needed to clean rooms, how many people will be checked into the hotel, or how many guests will dine in the restaurant.

Financial forecasts are often used to determine the end fiscal results to provide owners and investors with an outlook on revenues and profitability.

A revenue management forecast, however, is intended to estimate the expected future demand for a hotel so they can manage that demand to achieve the hotel’s ultimate revenue objectives.

This may also be referred to as an unconstrained demand forecast. The calculation of unconstrained demand is a critical forecasting requirement because its success affects the entire pricing, inventory and revenue management process.

For accurate revenue management forecasts, it is important that hoteliers have detailed data that contains both historical and future information. The historical data should include the number of occupied rooms, as well as the achieved revenue by market segment per day.

Future data should include the number of rooms and revenue on-the-books by day (and by market segment) for a minimum of 90 days in the future.

When data is collected daily, the hotel can establish simple booking pace forecasts by market segment and day of week, and compare it to historical data. When done consistently, it allows hoteliers to quickly identify when demand picks up or decreases, and enables them to adjust their sales and marketing strategies accordingly.

In most markets, it is also important to understand the prices changed by your competitive set and, more importantly, how this can affect your own forecasting and pricing. It is ideal to analytically fold competitor data into the demand and pricing for a well-rounded, competitive strategy.

Accurate forecasts are important in revenue management because not only do they influence rate decisions and strategies, but they also impact any displacement evaluations for potential group business.

Displacement scenarios allow hoteliers to determine if a piece of group business will end up displacing higher paying transient travelers and hurt their potential revenue performance.

For other helpful hotel revenue management advice, download the new “Revenue Management Ingredients” eBook here: www.ideas.com/RMebook.

NB: This is a viewpoint by Neil Corr, senior advisor, EMEA, at IDeaS.

To discover the latest hotel revenue management strategies, download the Tnooz Report “Practical Hotel Revenue Strategies for Successful Revenue Leaders.” Our author, who has written books on revenue management strategy, distills 7 practices that typically need updating and 7 strategies revenue leaders should adopt now. Buy the report now..

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Viewpoints

About the Writer :: Viewpoints

A founding principle of tnooz was a diversity of viewpoints from across the spectrum. Viewpoints are articles by guest contributors from around the travel and hospitality industries. The views expressed are those of the author. and do not necessarily reflect those of the author's employer, or tnooz and its partners.

 

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  1. Lea

    One of the challenges with forecasting is considering the cancellation policy of rooms. The more Free Cancellation rooms are offered the higher the risk on your revenue forecasting. Increasing Non Refundable rooms inventory will help mitigate this risk. For best customer satisfaction you can add the Life-Happens options to keep cancellation flexible but still securing your revenue. http://www.life-happens.com

     
 
 

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