Revenue Management

Guide to hotel room revenue forecasting

Learn how to leverage hotel revenue forecasting to better meet demand and increase your hotel's profitability.

Incoming data shows that 2022 hotel revenue per room is exceeding 2019 levels. While overall occupancy is forecasted to be lower than pre-pandemic levels, core revenue metrics like:

  • The Average Daily Rate (ADR) is forecasted to be $14 higher than in 2019
  • The Revenue Per Available Rooms (RevPar) is forecasted to be $6 higher than in 2019

But that’s not all; hotel revenue per room is changing all the time based on the market’s and your guests’ current needs. Hotel revenue forecasting can help you keep up with the ebbs and flows of this demand, helping you take advantage of opportunities to increase revenue, while also helping you prepare for tough times in the economy. 

But how do you accurately calculate hotel revenue forecasting by room? It starts with hotel demand forecasting

Hotel demand forecasting

After you’ve identified your market segmentation and segment mix, it’s time to forecast demand for the coming months and seasons. Hotel demand forecasting is the process of using historical market and internal revenue data to build predictive reports on future room and amenity demand. 

Demand forecasts are built on two key elements. First, historical data is used to understand the demand and revenue performance of your hotel in previous years. Second, market and internal data analysis is used to determine how future demand may differ from that of previous years. 

Your hotel’s demand forecasts significantly influence your pricing strategies, so it’s essential to make sure your forecasts are as accurate as possible. 

Simply put, to build accurate forecasts, you need accurate data. This is why you must have correct records of the internal metrics and market indexes you’ll use to develop your forecasts.

Let’s break down the core concepts of demand forecasting.

Predictive analysis

Demand forecasting is a form of predictive analysis. Once you’ve identified historical and current trends, you can use smart algorithms embedded in revenue management software to build logical predictive models of future occupancy and revenue.  

Through statistical analysis, hotel revenue forecasting tools allow you to run “what-if” scenarios to predict future demand and set optimal rates. 

Constrained demand vs. Unconstrained demand

There are two types of demand that you’ll want to understand before forecasting.

First, constrained demand is the maximum level of demand your hotel can generate based on the number of rooms your hotel has. For example, if your hotel has 100 rooms, your maximum constrained demand is 100.

On the other hand, unconstrained demand is the level of demand your hotel could generate if your hotel had unlimited capacity.

If your unconstrained demand is forecasted to be higher than your property’s capacity, that’s a good sign that you should raise room rates.

Competitive set

Your hotel’s competitive set is the select group of hotels that directly compete with your property for business. A complete competitive set gives you the ability to analyse your hotel’s competition and benchmark your performance and rates against your potential guests' other accommodation options.

There are four competitor attributes you should consider when building your competitive set:

  • Location: Your competitive set should include the properties that are closest to your hotel.
  • Property Type: It’s important that your competitive set includes properties that are the same type as yours. Consider the number of rooms and star rating of these hotels.
  • Price: Most travelers will consider pricing when booking a hotel so only include properties that have similar rates to your hotel in your competitive set.
  • Amenities & facilities: Keep in mind that groups and corporate guests will often consider a hotel’s event spaces when booking rooms. Leisure guests tend to look at hotels with the amenities they’re looking for when booking a room.

Tip: Transient guests, or guests who occupy a property room for less than 30 consecutive days, will often look for short-term rental properties when booking accommodations for a trip. You may want to consider researching the offerings in your hotel's vicinity. 

Forecast modeling

Once you’ve collected your internal and market data and analysed your competitive set, it’s time to build out your hotel’s revenue forecasting model. A forecast model is a calculation of your expected demand for a given period of time.

You can build a forecast model in a spreadsheet and manually enter your data to forecast your hotel’s demand. However, many business intelligence and revenue management software tools will automatically forecast demand for you.

How to automate hotel demand forecasting

One of the greatest challenges in modern hotel revenue management is breaking down data silos so you can access clean and accurate data for segmentation. Utilising a complete hotel business intelligence and data management software can take the headache out of this process.

InTouch offers revenue managers and hoteliers the most powerful suite of decision intelligence tools available to the hotel industry. Leverage a fully compliant, secure, and cost-effective platform to reconnect your siloed data and make reporting, analysis, and collaboration as easy as pressing a button.

Request a demo today to see how InTouch can turn your hotel’s data into decision intelligence.

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