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The hotel room revenue forecast based on historical data no longer works for now

By: Lobby PMS
Date: 10 Nov, 2020
Pronóstico de Ingresos para un Hotel

Data is just numbers until it becomes information. Hotels need constant information to make business and operational decisions.

From a revenue management point of view, we need information to help us forecast the future. But no one has a crystal ball to know exactly how occupancy or average rate will behave. We do our best through a hotel revenue forecast based on different data including historical information.

The problem today is that, with the pandemic and reactivation of tourism, historical information cannot be taken as reliable data that can be replicated to the new reality. At least until tourism stabilizes.

Why is it important to make a room revenue forecast?

Not only to have an estimate of hotel income or occupancy, the forecast is a tool that all hoteliers should use regardless of their size since it allows them to make decisions such as how much staff they require on certain dates or if they have to hire extra temporary staff.

With a forecast, a hotel can determine whether it has to block a wing or an entire floor of the building and thus save on electricity, cleaning and other costs. Also, a forecast allows the hotel staff to anticipate all that is necessary when high occupancy is expected and raise the room rate and manage the restrictions for the last rooms to be sold.

Without a hotel revenue forecast, we are maneuvering a ship adrift in a sea that can face complications from tides, storms and other disasters and we could not anticipate in time. Without a forecast we fall into the hands of the market and give the power of price to customers, competitors and intermediaries such as OTAs. Our task as hoteliers is to understand how to increase a hotel’s income by making use of data at our fingertips and seeking information to give greater certainty to our forecast.

How do you usually make a revenue forecast for a hotel?

hotel revenue forecast

There are many ways to build a hotel revenue forecast. We must start from the characteristics of the hotel. For example, its location, seasonality, dependence on certain types of business (tourists, corporate, groups, etc.). And then decide which are the variables that most affect demand (which is what we finally want to forecast). Here is a list of some of them:

Historical information on hotel sales:

Definitely, what happened in previous years can happen again. For example, important dates of the year with the highest flow of guests, vacation months of the majority segment, among others. This information is usually stored in the hotel PMS or hotel system.

Current information in books:

It is important to have the information registered in our hotel reservation system about all the reservations that the hotel currently has for future dates.

The simplest way is to have a PMS for small, medium or large hotels where from the reservation, welcome at the reception, to the stay itself we can have information about our guests, their reservation behavior and use this data as part of the analysis to make a forecast.

For example, knowing in advance how long guests in a certain segment made their reservation, will help us to know at what rate these types of customers usually book as their date of stay approaches.

Market trend information:

The hotel is not isolated from the world, it is part of an ecosystem where it has a micro environment made up of its competitors, clients, suppliers and sales channels, so it is important to review what is happening in this micro environment. For example, changes in the occupancy of your competitors or a trend in the behavior of the traveler that influences the way of making a reservation.

Groups and events that provide volume of reservations:

In addition to keeping in mind the festive dates in the calendar, especially if one receives national guests, it is relevant to seek information on small, medium and large events with the potential to generate customer demand for the hotel.

These groups of people can represent from a few nights reserved to having a large volume of reservations generated, which is a variable that makes us make decisions in the management of income or revenue management. All this information should generate rate and availability adjustments in our online reservation system.

A constant look at the competition:

This should be one of the most frequent and recommended practices for all hoteliers, having a daily look at the competitor’s rate helps to constantly review our positioning. First, it is important to choose our primary and secondary competitive set very well.

Why is historical data now not so useful for a revenue management forecast?

hotel revenue forecast

As described above, historical occupancy, rate, and demand data from past years are typically used as part of the variables to forecast room booking revenue. Given the global situation of the pandemic, the behavior of this year and probably the following 2 to 3 years have no relation or comparison with the historical data.

We are at a moment in history in which many hotel companies are creating new data, new trends. We are in an age where travel behavior is in flux.

But the time will come to use historical data again with the importance it had before the pandemic once the recovery in tourism and demand stabilizes. For this reason, it is essential that within the various types of hotel reservation systems you choose the most ideal hotel systems for reception that allow you to correctly store all these new data on the new travel behavior.

How can I make a revenue management forecast from now on?

Many of the variables that we saw in this article will still be valid to work a forecast. The historical data needs to be put aside for a while. One of the most recommended methodologies is the creation of scenarios.

A scenario is a situation of risk and uncertainty about the future that allows us to plan the actions now, in the present. It is usual to have positive, intermediate and negative scenarios where we can also have action plans that adjust to the situation in any of these scenarios.

Each hotel needs to choose a series of variables to take into account that will allow us to know what to expect in the future. For example, if a hotel depends a lot on air connectivity then the opening of flights is a key variable to take into account. Here is a list of some of the variables that we could use for our scenario construction:

  • Percentage of occupancy. Where we can review the booking pace. An increase in the pace will be one of the indicators of occupancy acceleration.

  • Reservation cancellations. Like the occupancy rate, cancellations help us understand the market trend.

  • Evolution of pandemic new cases. Here we also want to review the rate of increase or decrease in daily cases.

  • Number of air flights or air connectivity. Especially if the opening of commercial flights is very relevant for your hotel. An alternative can also be the opening of terrestrial connectivity.

  • Opening of key destinations. It could be a historical monument or an attraction that you know always generates high demand.

  • Hotel search trends. Help us to see how part of the reservation intention is behaving starting from the increase of search terms that are related to hotels.

Keep in mind that, in order to build the scenarios, you need to assign a level of importance to each variable. This depends on the ones that are important to your hotel.

The best advice we can give you is to invest in the correct technology so that all these reservation data are correctly registered.

Lobby PMS is the technological tool that will help you to centralize not only reservations, but also to keep a record of all those data that will help you make a forecast for your revenue management strategy.

Images: Freepik & Pexels

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