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Hotel Revenue Forecasting: Definitions, Models, and Best Practices
By SiteMinder
Thursday, 11th August 2022
 

As unpredictable as it can be at times (especially through the COVID-19 pandemic), forecasting is still an important part of running a hotel and being able to make strategic revenue management decisions.

What is hotel revenue forecasting?

Hotel revenue forecasting is a method that is used to help you determine your property’s future demand and revenue performance.

By analysing past and present data, forecasting enables you to predict future outcomes and gives you the opportunity to correct past mistakes, maximise profit, and be prepared for disruptions or unforeseen events.

Why should your hotel use forecasting?

You need to use forecasting at your hotel to inform your pricing and revenue strategies. Without undertaking accurate forecasting, you’ll have no accuracy when it comes to predicting your future booking volume.

Without a forecast, you’ll also be flying blind as you plan and implement your rates, promotions, and packages for the upcoming months.

A good forecast will help you make the most of peak periods and help you through low periods easier.

How can you forecast effectively at your hotel?

The outcome of your forecasting should always be the ability to react to market changes, optimise occupancy, and maximise revenue.

Doing this effectively means you have to consider a number of factors such as key revenue metrics like occupancy, room nights, and average daily rates; but also staff allocation and resourcing. The more data you can gather, the less uncertainty you’ll have and the stronger your plans will become.

However it’s important to remember that your forecast should not be static. You should perform weekly or monthly reviews as new information comes to hand and constantly measure performance, looking at what went right and wrong. This allows you to make adjustments to your strategy and update your forecasts to drive even better results.

The basis for your forecast should be historical performance and market trends. With these you can draw conclusions about what you missed, what you can expect, and how you can improve in the next month, quarter, or year.

Forecasting models to use at your property

A simple forecasting model that your hotel can get started on is to use purely historical data to predict future outcomes.

For example, you could single out a particular month and look at:

  • How many room nights were sold
  • Your occupancy rate
  • Your average daily rate
  • Your total revenue
  • Average length of stay
  • Booking lead times

Based on this you could predict similar numbers for the same month the next year, and strategise on how you improve your performance and boost profit.

A more advanced forecasting model that your hotel can use is to also look at data based on segmentation in addition to the basic metrics above.

This means taking into consideration things like group bookings or demand driven by abnormal circumstances. For example, if a company booked a corporate trip as a once-off, you know you can’t rely on that larger than normal influx of occupancy or revenue the next year. So you would need to look at ways you could fill the gap in room nights or earn more revenue from the other predicted bookings.

Going further, to completely flesh out your revenue management forecasting, you should also take competitor pricing and overall market performance into account. This will allow you more clarity and flexibility when it comes to setting your rates. For instance, you might want to set seasonal prices, target new demographics, implement new promotions, or market your property on a comparative basis to beat your competitors.

Hotel revenue forecasting best practices

When compiling your data and establishing your forecasts, it’s crucial that everything is as accurate as possible and that all data points have been accounted for.

Remember the following:

  • Past performance data and historical market trends
  • Current hotel data such as current reservations, confirmed upcoming promotions or marketing campaigns, and website traffic and conversions
  • Current market trends such as increases or declines in arrivals to your destination or increases/declines from particular source markets
  • Ensure good quality data is collected, including specific channel performance, travel types (business or leisure for example), guest demographics, and drilled down metrics like RevPAR
  • Always take events, holidays, and global conditions into account
  • Review your performance and forecasts in conjunction regularly so you can make quick and effective decisions
  • Consider competitor performance as part of your calculations
  • Compare your share of new bookings vs repeat bookings to help define your strategy
  • Work hard to reduce data errors such as incorrect segmentation, duplicate bookings, pending reservations, overbookings, or incorrect rate mapping or reservation dates

Need help forecasting, accessing real-time data, or staying ahead of your competitors?

Hotel business intelligence software, included in SiteMinder’s hotel commerce platform, will give you clear, accurate and up-to-date market data that’s accessible anytime.

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