Now more than ever, it is important for operational departments to have a realistic financial outlook of hotel revenue in order to be able to run day-to-day operations as cost-effectively as possible. As a hotel owner, you need to know the estimated financial performance of your hotel, so you can plan using that estimate.
But before we learn about the best way to forecast revenues on your hotel, we need to understand what revenue management is, and what it entails.
Revenue management is the utilization of disciplined analytics that foresee buyer conduct at the miniature market levels and optimizes product accessibility and cost to amplify income development.
Hotel managers get valuable insights from forecasting. This can form the baseline for tactical decision making to boost hotel revenue performance. Because hotel rooms are perishable assets, forecasting is a crucial way of maximizing hotel occupancy rates.
So, how can you as a hotel owner or revenue manager forecast revenues in your hotel? Luckily, we’ve prepared a step-by-step guide to guide you along revenue forecasting and what it entails;
- Create a Successful Forecasting Model for Your Hotel
For you to be able to carry out an accurate, thorough forecast, there are various tools needed depending on the range of your needs and budget. One of the most significant factors is choosing the right hotel revenue forecasting model to use. This is usually the job of revenue management. For those wondering what is revenue management? And what does it do? As the name suggests, revenue management mostly deals with optimizing hotel revenue through the use of forecasts.
To do this, you have three popular hotel forecasting models to explore and pick from; Operational Forecasting, Revenue Management Forecasting, and Financial Forecasting.
- Operational Forecasting – This model is more focused on operation areas across parts of the hotel such as restaurants, staff allocation, risk management, and reception. It scrutinizes these sectors taking in seasonal peaks and troughs, purchasing obligations, and contingency plans that might offset any type of damage.
- Revenue Management Forecasting – Also known as Unconstrained Demand Forecasting, this gives hotel managers insight into future revenues. It makes use of market performance, competitor pricing, and overall market data, and applies periodic pricing models to grow occupancy rates at the optimum revenue maximization price.
- Financial Forecasting – This forecast type gives you a prediction of revenue and profit you stand to make as a hotel. It anticipates the desired cash flow each month, so as to properly compensate for periods when demand is low. For example, some hotels tend to get more customers during the holidays and must generate enough revenue during this time to make up for less busy periods. Metrics for this include insurance, amortization of loans, license fees, and much more.
In the end it all comes down to which model works best for you and suits your purpose.
2. Pay Attention to Past Performance Data
While forecast revenues are focused on gaining insight and speculating about future revenue spikes, the importance of past hotel data as an indicator for the future performance of the hotel cannot be stressed enough. This allows you to draw an analysis of where your revenue is presently and the estimated amount of growth you expect in the future.
It is necessary to follow a long and detailed process to ensure the high quality of your data, such as guest nationalities, travel type (leisure or business), customer preferences, and distribution channel performance.
While nothing is guaranteed, taking note of past performance data can help you identify trends in hotel revenue, such as lulls in guest demand, spikes, and other important information.
3. Top Accounts Expectations
When planning your forecast revenue for your hotel, it is important to take note of top clients and accounts, whether it’s a business or an individual, and put this into perspective when analyzing your forecast revenue.
Top-performing lodgings envision creation for their top records, including direct, corporate, consortia, and discount, Directors would then be able to contrast the result of foreseen returns and their desires and whether it fits with general OTB patterns. This empowers you to picture disparities and, consequently, make a move to make up any deficiency.
4. On-The-Book Data
When forecasting revenues on your hotel, Revenue Management should study existing reservations that have already been made, bids that the hotel has in the pipeline and upcoming promotions. In addition, the level of traffic on your website, specifically in relation to its level of success, and how it contributes to the number of bookings you get should also be analyzed.
On-the-book data is very important, as slight inaccuracies can greatly affect the result of your forecast. So be sure to cross-check this properly before using it. Some things to look out for include how correct your segmentation is, whether your group tentative is correct, and the presence of duplicate bookings, whether room blocks are up to date, and so on.
Market trends have always been extremely wide and general. Yet, every successful business owner knows that one of the keys to optimizing revenue is by paying attention to growing trends. For example, trends may incorporate an increase/decline of customers or guests in your local city or area; increase/decline in contender hotels in your general vicinity or area; and changes within the native, regional, and, if applicable, global economies. All things considered, they are essential to such an extent that they must be taken into account.
Strong revenue management for the most part incorporates a record of all the accessible contender information, well-kept to this point at irregular intervals. This data includes accessibility, room rates, lulls and high demand periods, completely reserved dates, management changes, opening and closing of hotels, and sales strategy shifts.
5. Holidays and Events
During certain periods and seasons of the year, such as Easter, Christmas, Salah, News Years, or even national events such as Independence Day, or Thanksgiving, annual recurring revenue is significantly higher than usual. When forecasting revenues, revenue managers should anticipate these periods and events in order to properly plan for spikes in demand during these periods.
Furthermore, it is important to measure similarities between similar days past weeks to get a fully accurate and detailed forecasting. As important as year-on-year comparisons are, they just aren’t enough. An effective revenue system will compare booking trends on similar days across various weeks and seasons.
This helps produce greater comparison data samples, which are important because they give revenue management rich data they can work with when forecasting revenue and measuring revenue growth. The richer the data that the process has to work with, which can produce better informed, up-to-date, and well-defined results for your hotel.
6. Repeat and Rebooking’s
The number of repeat customers and rebooking your hotel gets should be carefully taken into consideration when forecasting your revenue. By knowing how likely it is for a customer to attend your hotel more than once and how often this happens, you can anticipate this when revenue planning. This helps to make for a well-defined and detailed forecast.
Revenue managers ought to likewise be aware of occurrences that can skew forecast accuracy. Examples are rehash clients that are incorrectly recorded as new visitors, and events where guests drop and rebook at a diminished rate.
7. Setting Your Hotel Up for Extraordinary Revenue Management Forecasting Outcomes
This is the final and last step, but one of the most important. Forecasting methods and results can shift across different hotels. Significant contrasts regularly exist across organizations and even within the same hotel group between various properties in their portfolio.
The more forecasting is acted on in a very consistent and comprehensive manner, the better the precision. Furthermore, with regards to building up your variance, when you accomplish 5%, you can make it sharper, for instance, 3% or 4%. On this note, it is additionally worth remembering that setting too ambitious targets can demotivate your workforce.
Your variance should be realistic and provide you with a strong target that helps your business grow and motivates your team. By employing a proven revenue management system with market-driving innovation at its core, you can profit off a powerful tool that is additionally, an affordable way of producing strong, forecasting results.
In the end, it all comes down to being prepared for whatever outcome you get from your revenue forecast and planning accordingly.
For every successful hotel, the revenue forecast is at top priority. This is because it gives you an outline of what you could gain and where you are standing as a business and as a hotel is at the time. In conclusion, the amount of information accumulation that revenue management systems can provide not solely revenue managers capacity to examine information, yet additionally, alleviates the ever-expanding complexities of hotel distribution, which with no support, can become overpowering.
Hopefully, the tips that have been shared on how best you can go about forecasting revenues for your hotel have helped you understand better what revenue management is, and given you a breakdown on how you can forecast revenues on your hotel periodically.