For a revenue manager, a hotel demand forecasting solution is a holy tool.
Revenue managers spend a considerable time in coming up with a forecasting analysis. And thus it is obvious for them to be a little touchy about it. But it is also important that Revenue Managers understand when a forecast needs to be altered and also the reason it needs a modification.
The reasons could be many like the Revenue Manager might have missed any important market dynamics while coming up with their demand forecasting analysis.
Let’s discuss this closely in this blog, and understand why demand forecasting is important and also why it is important to do it the right way.
Three reasons why we need to do Demand Forecasting:
- For setting the correct strategies for driving incremental profits
- Consolidating information at the micro and macro level.
- Utilizing forecasting data collaboratively at other departments
For setting the correct strategies for driving incremental profits
It is important for an efficient and proactive Revenue Manager to regularly do a detailed analysis and forecast per category/type of inventory, so as to get an accurate insight into the market dynamics and demand & supply.
Important factors to look at are demand curves, market share details, distribution stats, conversion and cancellation ratios, competition pricing trends, seasonal impacts, and events etc.
Technology has come in really handy for revenue managers; handling vast amounts of data with revenue management systems is much more convenient and faster. Additionally, it is much easier now to manage multiple properties simultaneously with revenue management solutions available.
Consolidating information at the micro and macro level.
The best part about having a well-formulated hotel demand forecast analysis is that it shows exactly how your inventory is being consumed and offers revenue managers the opportunity to refine their inventory distribution strategy like controlling different segments, monitoring (increase/decrease) your BAR rate, setting a minimum length of stay in times of surplus demand, are the ways which bring real value of the incremental revenue to your hotel.
Let us understand this with an example of a big hotel or a group of hotels; demand and occupancy predictions at a micro level are important for sales team and management to know. Like sales head or GM will be rightly able to put their efforts in the correct direction if they have such information handy well in time. Such demand forecasting will help the sales team to manage their sales and marketing budgets and strategies to be designed and used effectively. So this is a micro level planning for running operations profitably.
At a macro level for a big hotel, demand forecasting is filtered on various parameters like region/country wise, city level or each property wise, etc. Such consolidated and filtered data helps head office or management guys to take a decision at a strategic level about the time, money and efforts to be allocated as per the requirement and forecasting reports.
Further, these stats will serve as a base for the management to communicate about the company’s financial status, which will have an impact on stock prices also. And this is the reason why accurate forecasting figures become important at a macro level. It is the fine balance that needs to be maintained in coming out with any strategy basis this prediction data. This is because an overstated forecast will upset the financial market and can lead to undesirable drops in share value, on the other a too strict projection can upset the stakeholders and investors and will put unnecessary stress on the management.
Utilizing demand forecasting data collaboratively at other departments
One very important point that is usually missed out is that such hotel demand forecast data are utilized by hotels for only commercial and sales related needs only. Whereas findings from the forecast can be used for the benefit of the entire hotel. How?
Precisely calculated occupancy data can help in various functions like – estimating F&B expenditures, housekeeping expenditures and cost per room. This will help in predicting F&B revenues and overall operating costs for the next few months or quarter. And furthermore purchasing and staffing departments and plan their work. If executed nicely, this is part of total revenue management.
Treat Group and Transient business separately
An important factor that is missed at times is the difference between transient and group business forecasting. Group bookings are more unpredictable and thus more inaccurate. One point to be kept in mind is that you should have a thorough analysis of the reason for deviation so that accuracy is more the next time.
Also, you will be surprised to know that many times these are valid reasons and at the same time they are unpredictable also; like you may receive a huge group booking done or cancelled last moment. Such situations are highly unpredictable.
However, if such instances help you overachieve, you will obviously pay less attention to accuracy. But under-performance will definitely be an issue. Thus, by keeping accuracy as your main focus, you can fully depend on it as a basis for setting up your hotel strategies for the future. Thus, it is advisable to go for tools which give you results as close to 100% accurate result.
Conclusion: We all will agree without a doubt that accuracy in hotel demand forecasting is very important for our planning to be bang on!! But what is debatable is what is more important; achieving or accuracy.
Well, any given day, overachieving is also equally desirable, but not at the cost of under accuracy.