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Forecasting: the first step in Revenue Management is foresight (part I)

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26 November 2014 at 10:48, by

Innwise RM

Innwise RM

The saying “forewarned is forearmed” can be applied to the functioning of hotel establishments. A large part of the success of a Revenue Management strategy rests on being foresighted when it comes to sensing how occupancy, and the market are going to evolve. In this article, we will try to explain what forecasting is, what it is for, its makeup and how to achieve it.

Forecasting is estimating and analysing future demand of a product or specific service using different variables, like historical data, market estimates and promotional information. Furthermore, through a global analysis of the market, we can try to influence the consumers’ behaviour to maximize hotel profits.

It is a fundamental aspect of our strategy because it allows for planning on all levels: from occupancy rates and prices to recruitment depending on the amount of work. However, there are more essential reasons to use forecasting.

Why and what for?

A) To measure demand

B) To foresee drops in demand

C) To react when faced with periods of low demand.

D) To define a commercial strategy

E) To apply appropriate rate levels

F) To restrict sales for certain channels

G) To control expenses

H) To control commissions

I) To plan the necessary financial recourses

J) To plan the necessary human resources

A Forecast must be as accurate as possible, as otherwise we could be faced with two scenarios that we really want to avoid:

–  Overcasting: when we expect more clients than those that will actually come, so we set higher rates or limit the length of their stay, which will result in lower occupancy due to bad management.

– Under forecasting. More clients than we expect and can accommodate will arrive. It can also happen that a hotel has been selling rooms at a rate below the market rate for a period of time. We will find ourselves with an uncomfortable situation of overbooking, once again because of bad forecasting.

At this point, we must point out the differences between a budget and a forecast so as to not confuse these concepts. The first refers to an annual prevision of a fixed amount that the establishment’s management sets. The second allows us to correct and analyse the strengths and weaknesses of the hotel’s Revenue Management strategy as we go. It is a lot more flexible.

A forecast can be planned two ways:

Long term. Characterized for making less precise predictions. Different economic markers make up the results such as inflation, unemployment, etc.

Short Term. Opposed to the previous one, it is more exact as it includes a large variety of data: the competition’s prices, exchange rates, the weather, cost of complimentary services (fuel, tax…). It provides a larger, more complete picture which can provide a better all-round view when it comes to planning.

How to achieve it?

To obtain a demand Forecast we need to take into account various factors. Some of these are:

  • OTB + SDLY = On The Books (rooms confirmed at this moment) + Same Date Last Year (confirmed the same day last year)
  • Forecast vs. Budget
  • Real data from last year and trends from last months
  • Total pick up last year
  • Needed pick up for the budget
  • Accuracy of average forecast
  • Booking Curve…

The summary of all these elements must be registered in some type of document to control occupancy predictions. There are specific programs, but a simple option is to create a spreadsheet for months and days of the year so that the hotel can control room availability and even, according to the record, predict what actions to enforce depending on the estimated demand.

That is why it is so important for hoteliers to extract this data, as it is this information that can influence whether to adapt more or less conservative strategies.

In the next post, we well dig deeper into the ins and outs of Revenue Management. From Innwise, as specialists in the subject, we will be happy to help your hotel maximize their benefits.

 

Innwise

Innwise

Optimizamos tu estrategia de comercialización online mediante una eficiente gestión de canales de distribución, buscando a través de un revenue management un resultado final rentable siempre como objetivo. Ponemos a tu disposición un amplio paquete de soluciones de emarketing.

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