Forecasting is an important part of any revenue management strategy because it allows hotel managers to make vital pricing, promotion, and distribution decisions based on anticipated demand and performance. In this article, we look at useful forecasting tips to help you improve your revenue management strategy.

Table of Contents:

What Is Revenue Management?

Within the hotel industry, revenue management can be defined as selling the right room to the right client at the right moment, for the right price, through the right distribution channel, with the best cost efficiency. As a business practice, it is primarily concerned with optimizing financial results. Originating in the airline industry, it is now commonplace in many industries with high fixed costs and a perishable inventory.

Forecasting Explained

Forecasting is a tool that can help hotel management anticipate future business performance, better equipping them to deal with future uncertainty. Using past performance data, industry trends, and other available information, hotel managers can make educated projections on key metrics like room occupancy, average daily rate, and total revenue. Ultimately, forecasting aims to give businesses a better understanding of how they will perform in the future so that necessary adjustments can be made.

Video: What Is Hotel Forecasting

The Importance of Forecasting

The ability to create forecasts can be incredibly useful for hotel managers because it allows them to predict future performance. This, in turn, means they can make more measured financial decisions, better prepare themselves for any financial problems, and make adjustments to maximize revenue and minimize damage. For instance, forecasting can allow hotels to adjust prices based on demand, focus sales toward different demographics, or change their marketing strategy, to attract more customers of a certain type.

Table: Forecasting Function Importance

Forecasting Function Applications in Revenue Management Strategic Benefits
Predicting Future Performance Estimating occupancy rates, average daily rates (ADR), and revenue per available room (RevPAR). Enables informed decision-making by providing a data-driven outlook on future financial health.
Financial Decision Making Budget allocation, capital investment, and operational cost management. Facilitates prudent financial planning and resource allocation to ensure profitability.
Preparation for Financial Challenges Identifying potential downturns or low-demand periods in advance. Allows for proactive measures to mitigate risks and minimize financial impact through strategic contingencies.
Revenue Maximization Dynamic pricing strategies based on demand forecasting. Optimizes revenue opportunities by adjusting prices in response to predicted market demand.
Market Segmentation Targeting specific guest demographics based on booking trends. Focuses sales and marketing efforts on profitable segments to boost occupancy and ADR.
Marketing Strategy Adjustment Tailoring promotional campaigns to attract desired customer types. Enhances the effectiveness of marketing efforts, increasing bookings and market share.
Operational Efficiency Staffing, inventory management, and maintenance scheduling based on forecasted demand. Ensures high service levels and guest satisfaction by aligning operations with expected business volumes.

Tips to Improve Your Forecasting

Below, we have compiled nine key tips which can help you to improve the quality and accuracy of your forecasting:

1. Keep Accurate Records

Forecasting relies upon accurate data, so the first step of any forecasting strategy must be to dedicate yourself to keeping accurate records. While the amount of data available to hotels can make this seem daunting, the most crucial information to keep track of includes things like occupancy, room rates, revenue, etc. However, you should also consider total room rent (sold rooms X average room rate) and average room spend per room. If you can access this information from previous years, include it in your new forecasting spreadsheet. If not, start keeping it now.

2. Make Use of Historical Data

Historical data is the best tool for forecasting room demand because the past can accurately predict the future. Although it is not a 100 percent guarantee, if you notice certain trends, like an upturn every June or an increase in business bookings every December, it usually makes sense to forecast similar spikes in demand. Similarly, you may notice trends associated with bad weather, economic recessions, etc.

3. Refer to Data in the Books

With that said, the one set of data you have that can truly be relied upon when creating a forecast is data that is already in the books, such as room reservations and business functions. Other data you could take into account are website traffic and planned promotions. It makes no sense to ignore this information when making your forecast, and if the reservations in the books outweigh the demand expected based on past data, you need to make adjustments.

4. Consider Events and Holidays

Next, you should think about important events and holidays and factor them into your forecast. For instance, Christmas is a natural time for an increase in business, as are the summer months. Similarly, local events can have a significant impact. You should anticipate spikes in demand around these times and a drop in room demand after those events or holidays have ended.

Forecasting Tips - Consider Events and Holidays

5. Keep an Eye On Your Competitors

In addition, there are other external factors to pay attention to, such as competitors. Try to keep tabs on the competition in the local area. Has a local hotel had renovations done recently? Has a new hotel or holiday home opened in the area? These are all factors that can hurt future demand. At the same time, competitors closing or relocating could mean a potential increase in business for your hotel, so look for this, too.

6. Pay Attention to Market Trends

It is also important to pay attention to more general market trends. These may be trends that are prevalent throughout the hospitality industry, such as a general increase or decline in visitors to hotels in your part of the world or an increase in competitors. At the same time, trends may also affect the wider market, such as economic downturns or upturns, which can also impact your forecast.

7. Break Down Your Forecast By Segments

Once you have a basic forecast from the various pieces of data and market trends you have factored in, you should aim to break it down into different segments. For example, you may create:

  • Forecast per origin – A forecast based on the different countries guests visit.
  • Forecast per distribution channel – A forecast outlining each major distribution channel.
  • Forecast per business type—A forecast that divides visitors into types: business, leisure, groups, etc.
  • Forecast per room – A forecast looking at the demand for specific rooms, suites, or guest houses.

By doing this, you will better understand exactly where your business is coming from, the business impact of each segment type, and the types of businesses you need to target more.

8. Work With Marketing and Sales

With some forecasts in place, you can look more closely at what your projections mean for your business and work with your marketing and sales departments to make any necessary adjustments to strategy. For example, if your forecast shows a lack of interest from a specific market segment, you could focus more of your marketing efforts on them. Similarly, you could target sales toward the type of people who are most likely to visit.

Forecasting Tips - Work With Marketing and Sales

9. Refer to Your Forecasts Regularly

Finally, with your data collection methods set, your existing data in place, and your various forecasts created, you should refer to them regularly and use them to inform important business decisions. Although a forecast can never be 100 percent accurate, it can help you build a picture of the future, which is important for hotel revenue management, day-to-day budgeting, marketing, sales, and many more functions.

What Is Total Revenue Management?

Optimizing performance across all revenue sources, including restaurants, conferencing facilities, gyms, spas, and more, is important for any hotel looking to improve financial results. Total revenue management is the process of applying core revenue management techniques to all relevant departments to achieve this precisely.

Read “Total Revenue Management: How Hotels Can Maximise Their Revenue“ for a more in-depth look at total revenue management, how it differs from conventional hotel revenue management, and the benefits of adopting a total revenue management strategy. You will also find tips and advice on measuring performance and much more.

Forecasting Tips Revenue Management FAQs

To carry out a hotel forecast, hotels analyze past data, including occupancy rates, revenue figures, and trends, while also exploring external events, such as events in the local area. A revenue management system can then be used to anticipate customer interest and set prices based on this projected level of demand.

The four biggest factors that affect hotel forecasting are historical data, wider market trends, local events or holidays, and pricing strategies. By exploring these factors, hotels can anticipate customer behavior and demand changes.

Demand forecasting is the process of using available information, including internal data, external trends, and other data, to predict the level of customer demand for rooms. By carefully forecasting this demand, hotels can anticipate occupancy and revenue and adjust pricing and distribution.

Hotel demand is usually driven by many factors, including room rates, local events, weather and seasonal travel trends, economic conditions, wider market trends, business activities, and hotel marketing efforts.

While there is no precise amount of data that makes forecasting possible, accuracy is generally increased if a hotel has at least a year’s worth of historical data and ideally two or three years’ worth of data. This allows hotels to identify trends, spot cyclical patterns, and understand how demand correlates with various internal and external events.

Forecasting is an important part of any revenue management strategy because it equips managers with the ability to cope with the uncertainty of the future. By following the tips above, you should be able to improve both your forecasting and your revenue management.

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Revfine.com is a knowledge platform for the hospitality & travel industry. Professionals use our insights, strategies and actionable tips to get inspired, optimise revenue, innovate processes and improve customer experience. You can find all hotel & hospitality tips in the categories Revenue Management, Marketing & Distribution, Hotel Operations, Staffing & Career, Technology and Software.

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This article is written by:

Martijn Barten

Hi, I am Martijn Barten, founder of Revfine.com. With 20 years of experience in the hospitality industry, I specialize in optimizing revenue by combining revenue management with marketing strategies. I have successfully developed, implemented, and managed revenue management and marketing strategies for individual properties and multi-property portfolios.