What is Hotel Forecasting?

In short, forecasting is the practice of predicting your revenue performance for future dates. These predictions factor in your own historical data, segmentation, market trends, and even macroeconomic dynamics to more accurately forecast how much revenue you’ll book in the future. Hoteliers typically prepare forecasts for upcoming months or the upcoming year and revisit the forecasts as the dates get closer. In addition to forecasting revenue, hoteliers often forecast average daily rate, occupancy, and the share that will be contributed by segments such as transient, corporate, and group.

Your forecast is an important input for your revenue management strategy and your operational strategy. If you have no sense for how full your hotel will be, it’s difficult to schedule (or hire) staff in advance, make purchasing decisions, and even plan projects like renovations or a lobby remodel. Your revenue managers also rely on your forecast to set competitive rates, determine when promotions are needed, and manage restrictions like minimum lengths of stay. An accurate forecast helps you maximize your busy season and plan for your slow season.

Key Elements of Hotel Forecasting:

1. Occupancy Rates: Predicting how many rooms will be booked.
2. Revenue Predictions: Estimating potential income from room sales, food and beverage services, and other amenities.
3. Pricing Strategies: Adjusting room rates dynamically based on forecasted demand to maximize revenue.
4. Cost Management: Forecasting helps in planning the operational costs by adjusting staffing and other resources according to expected occupancy.
5. Seasonal Trends: Understanding the impact of seasonal variations on hotel bookings.
6. Event Impact Analysis: Assessing how local events could affect demand and preparing accordingly.

Purpose and Benefits:

• Optimization of Revenue: By understanding demand trends, hotels can adjust pricing and promotions to maximize income.
• Improved Operational Efficiency: Effective forecasting allows hotels to manage staffing levels, inventory, and other operational aspects more efficiently, ensuring resources are not wasted.
• Enhanced Guest Experience: With proper forecasting, hotels can ensure that they are adequately staffed and stocked, leading to better guest service.
• Strategic Planning: Forecasting is fundamental for long-term strategic planning, helping hotels to invest wisely in marketing, renovations, and expansions.

Hotel forecasting is a vital tool for decision-making, helping hoteliers to navigate the complexities of the market and to strategically plan for future developments.

What Do Most Hotels Take Into Consideration When Forecasting Reservations?

When forecasting reservations, hoteliers in the hospitality industry consider several critical factors to ensure their decision-making leads to optimal occupancy and profitability. Here's how these elements play into the hotel forecasting process:

1. Historical Data and Performance Data: Hoteliers rely heavily on historical data, such as past occupancy rates, average daily rate (ADR), and revenue per available room (RevPAR). This data helps in understanding trends and preparing for future demand.

2. Seasonality and Special Events: The forecasting model must account for seasonality, special events, and holidays, which significantly impact hotel demand. These factors help predict spikes and drops in the number of guests, allowing for better allocation of rooms and adjustment of pricing strategies.

3. Market Trends and Industry Trends: Keeping an eye on broader market and industry trends is crucial for accurate forecasting. This includes monitoring economic conditions, competitor strategies, and changes in consumer behavior that could influence hotel reservations.

4. Pricing Strategies and Room Rates: Effective revenue management forecasting involves dynamic pricing strategies to optimize room rates based on predicted demand. This helps in maximizing total revenue while maintaining competitive pricing in the market.

5. Demand Forecasting and Market Segments: Hotels segment their market to target specific demographics and tailor marketing strategies, including the use of social media, to attract the right mix of guests. Understanding the lead time and booking patterns of these segments aids in more precise demand forecasting.

6. Forecasting Methods and Forecasting Models: Utilizing advanced forecasting methods and models enables hoteliers to predict future reservations with greater accuracy. These models incorporate real-time data from the hotel’s PMS (Property Management System) and integrate with a revenue management system.

7. Occupancy Prediction and Financial Forecasting: Forecasting occupancy helps in operational forecasting such as staffing and resource management, ensuring the hotel operates efficiently during periods of high or low demand.

8. Decision-Making and Implementation: The entire forecasting process supports informed decision-making, from setting room prices to implementing marketing strategies. Accurate forecast data ensures that hoteliers can make strategic choices that enhance the guest experience and improve the hotel’s performance.

9. KPIs and Key Metrics: Key performance indicators (KPIs) such as occupancy rates, ADR, and RevPAR are continuously monitored. These metrics are vital for assessing the effectiveness of the forecasting and revenue management strategies.

10. Distribution Channels and Real-Time Data: Hotels also consider the role of different distribution channels in forecasting demand. The ability to analyze data in real-time from these channels allows for adjustments in pricing and room allocation, ensuring that the hotel remains competitive and profitable under varying market conditions.

Through these comprehensive forecasting efforts, hoteliers in the hotel industry can optimize their operational and financial forecasting, ensuring sustained growth and a strong competitive edge in the market.

The Current State of Hotel Forecasting

The goal of forecasting is to predict how many rooms will sell, and for what rates, in future weeks and months. Forecasting helps hoteliers anticipate staffing needs, plan marketing spend, and know when to yield rates up and down. While forecasting indeed brings value, the process itself is often a major pain point for revenue managers. Without a modern tech solution in place, revenue managers end up doing their forecasting in spreadsheets, which lack standardization and can quickly get disorganized, especially when multiple people are working together on the task. The traditional process is prone to manual errors and takes up a lot of your time. Many revenue managers forecast one month out, meaning that you build a forecast for next month within this month, in addition to readjusting this month’s forecast. This tedious process then repeats every month. To forecast further out than a month, revenue managers have had to rely on historical stay patterns at their hotel(s). However, with the pandemic, that has become even harder as travel is still stabilizing and historical patterns have not fully resumed. No one knows for sure how long it’ll take before it does.

The Challenge with Forecasting

Try as you might, forecasting isn’t the same as peering into a crystal ball; no matter how diligently you work on your budgets or how many times you reforecast, unforeseen events will undoubtedly pop up and throw off even the best laid plans. The next best thing is to get real-time feedback on your forecast on an ongoing basis, which enables you to understand changes in your market and adjust your forecast accordingly – as soon as possible. For busy revenue managers, it doesn’t make sense to manually reforecast more frequently than once per month or so. But without this real-time intelligence, how can your forecasts truly remain accurate?

10 Steps of Hotel Forecasting

Creating an effective hotel forecasting strategy is crucial for hoteliers to manage their operations efficiently, optimize revenue, and enhance guest satisfaction. Here is a step-by-step guide designed to help beginners understand and implement hotel forecasting:

Step 1: Gather Historical Data

Start by collecting historical data on your hotel’s performance. This includes occupancy rates, average daily rates (ADR), revenue per available room (RevPAR), seasonality trends, and any fluctuations due to special events or market changes. Example: If you manage a 100-room hotel and last July you had an occupancy rate of 80%, with an ADR of $150 and a RevPAR of $120, you should record this information for future reference.

Step 2: Analyze Market Trends

Look at the broader market trends affecting the hospitality industry in your area. This might include new hotel openings, changes in tourist attractions, economic factors, or demographic shifts. Example: If a new theme park is opening nearby, it could increase demand significantly. Conversely, if a major local employer closes, demand might drop.

Step 3: Segment Your Market

Divide your potential guests into different segments based on their behavior, needs, and source of booking. Common segments include business travelers, families, couples, and group bookings. Example: Families might book mostly during school holidays and prefer family-friendly rooms and amenities, while business travelers might book during the week and prefer high-speed internet and a workspace.

Step 4: Create a Forecasting Model

Use the collected data and market segmentation to develop a forecasting model. This model should predict future demand based on various factors like historical data, market trends, and booking lead times. Example: You might notice that bookings increase by 15% whenever there is a major conference in town. Your model should factor in upcoming events to predict spikes in demand.

Step 5: Implement Revenue Management Strategies

Apply revenue management techniques to adjust pricing and room availability based on forecasted demand. This is often done through dynamic pricing strategies and adjusting restrictions such as minimum stay requirements. Example: If high demand is forecasted for a particular weekend due to a local festival, increase room rates accordingly and set a minimum stay requirement to maximize revenue.

Step 6: Monitor Real-Time Data

Continuously monitor real-time booking data and adjust your forecasts as needed. This allows you to react to unexpected changes in demand or market conditions. Example: If you suddenly receive a large number of cancellations, you may need to adjust your pricing downward to attract last-minute bookings.

Step 7: Evaluate and Adjust

Regularly review the accuracy of your forecasts and the effectiveness of your revenue management strategies. Make adjustments based on what is or isn’t working. Example: If you consistently overestimate demand during the off-season, adjust your forecasting model to be more conservative during those months.

Step 8: Communicate with Your Team

Ensure that all relevant staff, from front desk employees to the marketing team, understand the forecast and how it impacts their responsibilities. Example: If a high occupancy is forecasted, the front desk staff should be prepared for a higher volume of check-ins and requests, while housekeeping should adjust staffing levels to manage increased room turnovers.

Step 9: Leverage Technology

Utilize forecasting software and tools integrated with your Property Management System (PMS) to automate and improve the accuracy of your forecasting. Example: Implement a software solution that can pull historical booking data, integrate with online booking platforms, and automatically update your forecast models in real-time.

Step 10: Continuously Learn and Adapt

Stay informed about new forecasting techniques, tools, and industry trends. Regularly attending workshops, webinars, and industry conferences can provide insights and help you refine your forecasting methods. Example: Participating in a webinar on the latest trends in AI-driven forecasting can provide you with advanced techniques to further enhance your forecasting accuracy.

By following these steps, even a beginner in hotel management can develop a solid foundation in hotel forecasting, enabling them to make informed decisions that optimize hotel performance and profitability.

5 Best Hotel Forecasting Software

When selecting hotel forecasting software, hotels should prioritize finding a solution that enhances their ability to predict and manage future business needs effectively. A good forecasting software offers accuracy and reliability, crucial for making informed decisions based on historical data and current market trends. It’s important that the software can integrate smoothly with existing systems like Property Management Systems (PMS) and Revenue Management Systems (RMS), ensuring seamless data flow and real-time updates.

The interface of the software should be user-friendly, minimizing the learning curve and enabling staff to utilize it effectively without extensive training. Customization and scalability are also key; the software should not only fit the hotel’s current needs but also adapt as the hotel grows or market conditions change. Effective software comes equipped with robust reporting and analytics tools that offer deep insights into performance metrics and KPIs, helping hotels optimize their strategies.

Vendor evaluation is another critical aspect of the selection process. A vendor with a solid reputation and proven experience, particularly in the hospitality sector, is likely to offer a more reliable product. Hotels should look for vendors who provide strong technical support and clear service level agreements, ensuring that any issues can be promptly addressed. It is also vital to ensure the software complies with current data protection regulations and features strong security protocols to protect sensitive information.

Hotels should not shy away from asking potential vendors direct questions. Inquiring about the experiences of similar hotels with the software can provide valuable insights, as can questions about the integration with existing systems, training and support, data security, pricing structure, and update frequency. Understanding how the software and the vendor respond to market changes and unforeseen events can also indicate the software’s resilience and adaptability.

Choosing the right forecasting software is more than just a technical decision; it's about finding a partner that can contribute to the hotel's long-term success. By focusing on these comprehensive criteria, hotels can select a solution that not only fits their current needs but also supports their future goals.

What Are The Benefits And Challenges In Forecasting Hotel Demand?

Forecasting hotel demand is a critical practice in the hospitality industry, helping hotels maximize profitability and improve operational efficiency. However, while it comes with significant benefits, there are also inherent challenges that need to be managed effectively.

Benefits of Forecasting Hotel Demand

1. Improved Revenue Management: Accurate demand forecasting enables hotels to optimize pricing strategies. By anticipating periods of high and low demand, hotels can adjust their rates to maximize revenue and occupancy rates. For instance, during expected peak times, prices can be raised, while promotional rates might be used during slow periods to attract more guests.

2. Enhanced Resource Allocation: Knowing future demand helps hotels manage their resources more efficiently. This includes everything from staffing levels—ensuring enough staff during busy periods and reducing idle time during quieter times—to adequate stocking of supplies and effective energy management.

3. Better Strategic Planning: With reliable forecasts, hotels can plan for the future more effectively. This includes decisions about renovations, expansions, and other capital investments. It also aids in long-term staffing and training programs, ensuring that the hotel can meet anticipated demands.

4. Effective Marketing: Demand forecasts help tailor marketing efforts to target the right audience at the right time. For example, if a low demand is forecasted for a certain period, the hotel might launch a marketing campaign aimed at groups, such as conferences or large events, to boost occupancy.

Challenges in Forecasting Hotel Demand

1. Market Volatility: Demand in the hotel industry can be highly volatile, influenced by numerous unpredictable factors like economic conditions, political events, weather changes, and more recently, global health crises such as the COVID-19 pandemic. These elements make it difficult to forecast accurately.

2. Data Integration and Quality: Effective demand forecasting requires the integration of data from various sources. Challenges arise when this data is incomplete, inaccurate, or not timely. For example, a lack of integration between the hotel’s booking system and market data can lead to misleading forecasts.

3. Changing Consumer Behavior: Consumer preferences and booking patterns can shift rapidly, influenced by new technologies, social media, and changing demographics. Keeping up with these trends and understanding how they affect demand can be challenging.

4. Technological Requirements: Implementing advanced forecasting tools and techniques requires a significant investment in technology and skilled personnel. Smaller hotels, in particular, might struggle with the costs and complexity of setting up sophisticated forecasting systems.

5. Competition and External Factors: Competition from other hotels and alternative lodging options like Airbnb, as well as external events (such as festivals or conferences in the area), significantly impact demand. Hotels must continuously monitor these factors and adjust their forecasts accordingly.

To overcome these challenges, hotels must invest in robust forecasting tools and technologies that can handle large data sets and integrate various data sources. Training staff to interpret and use forecasting data effectively and staying attuned to market trends and changes in consumer behavior are also crucial for successful demand management.

Hotel forecasting best practices

An effective revenue forecast doesn’t happen by accident. Revenue managers, working together with other department heads, should follow a few best practices when putting forecasts together:

• Study historical data: Except for outlier years like we experienced during the pandemic, historical data is often the best starting point for forecasting future revenue, occupancy, and demand. You’ll want to look at not only your hotel’s own data from past years, but also any market data that shows whether demand in your market is growing, shrinking, or staying flat across the last several years.

• Think about demand drivers: What brings people to your market? When are the biggest events? Have there been any changes to the annual event schedule, or will your city host a special event like the Super Bowl or a Taylor Swift concert? It’s also important to consider events that have been scaled down or canceled, like perhaps a convention that historically has lasted for a week, but next year will only last four days. Note all of these changes in your forecast so you can plan accordingly.

• Watch your compset: Monitoring your competitors’ pricing strategies can serve several purposes. You can spot opportunities in the market, like if a close competitor doesn’t have a compelling advance purchase offer, that might be your signal to put out a competitive early booker promotion to get more than your fair share of base business. Zooming out, you’ll also want to keep an eye on hotel openings and closings, since both would tell you important information about the health of demand in your market.

• Forecast by segment: Segmentation exists because different types of guests have different preferences, stay patterns, price sensitivity, and booking behavior. Building in a forecast for each of your key segments, like transient and group, will help your overall forecast be more accurate. For example, you’ll want to account for the longer booking windows that are typically seen with group reservations. 

• Include all stakeholders: If the forecasting process only involves revenue management, then your hotel won’t benefit from a cross-functional network of ideas and solutions. It’s not only up to revenue management to generate revenue and demand; instead, bring Sales, Marketing, F&B, and any other revenue-generating departments into the conversation. Together you can come up with new ideas for promotional strategies during low season (like F&B packages or spa credits) and ways to maximize revenue during peak season (like targeted email offers for repeat guests).