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Forecasting: How to Predict Future Bookings & Price Strategically
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Hotel Forecasting: How to Plan and Price More Strategically by Predicting Demand
Setting an operating budget for the coming year can feel like a wild guessing game for hoteliers. Market conditions can change quickly, affecting a property’s performance in ways you didn’t see coming and catching you unprepared.
But here’s the good news: you can stay ahead of the curve by producing room revenue forecasts and regularly updating them throughout the year.
Forecasts will alert you to future periods when your property isn’t on track to meeting budget targets while there’s still time to remedy the shortfall. They will also flag periods of unexpectedly high demand when you can increase pricing and earn more revenue.
In this guide, we’ll answer key questions owners and operators of independent hotels have about room revenue forecasting. We’ll explain how to use forecast insights to optimize pricing and inventory, improve operational planning, and not just meet budget targets but exceed them.
What is a Hotel Forecast?
Think of a forecast as a weather report. Just like meteorological forecasts help people plan for future weather conditions, hotel forecasts help staff prepare for future business conditions.
A forecast can be as simple as a monthly projection of room revenue or as detailed as a day-by-day breakdown of projected occupancy, ADR (average daily rate), RevPAR (revenue per available room), and revenue by market segment for the coming year.
Benefits of Forecasting
Forecasting is about more than just crunching numbers. It’s about painting a clear picture of what’s ahead to make smarter decisions throughout the hotel. This includes decisions made by the sales, marketing, and revenue management team, at the front desk, in housekeeping and food & beverage, and in finance and human resources.
Here’s why forecasts are so invaluable:
- Stay ahead of the game: Anticipate future business and cash flow.
- Spot trends early: Identify periods of unexpectedly high or low demand.
- Fine-tune pricing: Adjust pricing based on demand to maximize revenue.
- Be proactive: Enhance sales, marketing, and revenue strategies.
- Hit your targets: Ensure the property is on track to meet budget goals.
- Optimize resources: Improve efficiencies in hiring, training, and scheduling.
- Plan ahead: Anticipate future needs for equipment, food & beverage, and supplies.
Main Types of Hotel Forecasts
Hotels produce various forecasts for different purposes, but when it comes to room revenue there are two main types:
- Occupancy forecast. This forecast projects the number of rooms to be occupied each day over a future period, typically a month, along with ADR and RevPAR. It’s used primarily for operational planning.
- Demand forecast. This forecast projects the number of rooms that could be sold each day based on current pricing and demand if room capacity were unlimited, along with ADR, RevPAR, and revenue. It’s used to guide revenue management strategies and marketing campaigns.
In this guide, our focus is on room revenue forecasts. However, hotels also prepare financial forecasts for each department and for the property overall, using occupancy forecasts as a baseline to project income, expenditures, and profitability.
Preparing a Forecast
At the beginning of the year, hotels typically use the budget numbers as the foundation of the forecast. Over the course of the year, the numbers are adjusted and fine-tuned as the monthly actuals roll in and future projections change.
Using a spreadsheet or forecasting software, the hotel predicts the expected number of occupied rooms (or demand) on each day of the month, as well as the ADR and RevPAR. Monthly budget numbers and the previous year’s actuals are also displayed, showing variances for comparison purposes.
Ideally, the forecast will be updated once per week to ensure it reflects the latest conditions. When preparing and updating a forecast, here are some key factors to consider:
- Historical data: The hotel’s performance from the previous year (or two years), as well as more recent trends.
- Market conditions: Events, citywide compression, competitor behavior, weather, etc.
- Travel trends: Booking patterns, rate resistance, cancellations, and related trends.
- Current bookings: Rooms on the books and the booking pace.
Forecasting & Pricing Strategy
By projecting future demand, the hotel can identify periods of high demand when there are opportunities to increase rates and boost revenue. If the forecast indicates that the hotel could sell more rooms than it has in available inventory, it indicates that the hotel can increase rates while still attaining full or near-full occupancy. The forecast will also highlight periods of lower demand when rates may need to be reduced to meet occupancy targets.
It’s important to recognize that when room pricing changes, demand may change too. How strong the correlation is will depend on the amount of the pricing change, the price-sensitivity of travelers, and the supply of available rooms.
Rather than try to achieve 100% occupancy every night, hotels can better optimize performance by finding the sweet spot between average rate and occupancy that maximizes revenue.
Forecasting & Inventory Controls
In addition to pricing, hotels can use forecast insights to deploy other revenue tactics such as inventory controls and pricing restrictions.
For example, if a hotel always sells out on Saturdays but is often left with empty rooms on Fridays and Sundays, the revenue manager might consider the following tactics:
- Implementing a minimum length of stay (LOS)
- Closing Saturdays for arrivals
- Closing Sundays for departures
Other inventory controls include overselling, limiting the availability of certain room types, and restricting access to discounted rate plans on high-cost channels.
Ultimately, the objective is to use a combination of pricing and inventory controls to increase revenue over the entire period rather than focus on a single date.
The Importance of Forecast Accuracy
An accurate forecast will help ensure the hotel is well-prepared for ups and downs in business flows. If the forecast is off, the hotel might find itself understaffed and short on supplies during unexpectedly busy times. During unexpectedly slow times, it might find itself overstaffed and with more empty rooms than it bargained for.
The accuracy of forecasts tends to improve as the forecasted month approaches because market conditions become more certain. Hoteliers should monitor forecast accuracy (the difference between forecasted revenue and actual revenue), learning from variances and errors to improve accuracy over time.
Forecast Tips & Strategies
To improve the outcomes of forecasts, consider these strategies.
- React quickly to new events. Update the forecast as soon as new events are announced that will impact demand. This could be a concert or sports match, unseasonable weather, the closure of a competitor hotel, or a last-minute group cancellation.
- Include cancellations. While cancellation rates have returned to normal levels since the pandemic, they still remain relatively high and can throw off forecasts. Be sure to account for group wash as well.
- Forecast occupants per room. Include a breakdown of adults and children per room to inform planning across the property, such as the number of guests to expect at breakfast and at the pool, as well as demand for cribs, cots, and other sundry items.
- Forecast by market segment. Forecasts can be especially helpful when broken down by market segment or rate category because different segments have different spending habits. Typical segments include Best Available Rate, Discount, Corporate, Wholesale, and Group.
- Analyze demand by room type. For example, if demand is high for entry-level rooms but travelers are rate-sensitive, overselling (then upgrading) these rooms will help prevent lost bookings. Another option is to decrease pricing for premium room types to shift demand toward them.
Forecasting Made Easy with an Automated Pricing Solution
As you can see, forecasting can be a complex and time-consuming process, especially for smaller properties that don’t have the luxury of a full-time revenue manager. With an automated pricing solution, however, demand forecasts can be generated automatically.
Automated pricing software analyzes historical booking patterns, market conditions, target occupancy, and pickup to predict future demand. It then adjusts pricing dynamically, repeating the process up to several times per day. Not only does this save valuable time, it also helps ensure the hotel never misses an opportunity to maximize revenue.
Be Proactive with Smart Forecasting
With proactive forecasting, independent hoteliers can anticipate market changes, optimize pricing, and manage inventory more effectively. This helps the hotel meet budget targets and exceed revenue expectations, ensuring a competitive edge in the fast-paced hospitality industry.
To learn more about hotel pricing and revenue management, check out our Content Library.
About RoomPriceGenie
RoomPriceGenie is the easiest way to ensure that your rooms are priced right, every night. Purpose-built for the independent hotelier, RoomPriceGenie is fast to implement, intuitive to use and simple to understand. In an uncertain world, it’s revenue that you can count on. To find out more about automated pricing, start your free trial today.
Contents
Overbooking Strategy: How to Maximize Occupancy and Avoid Relocating Guests
