Benefits and challenges in forecasting hotel demand
Several factors can influence demand for hotel rooms, including the time of year, local events and attractions, and overall economic conditions. Hotel revenue managers may use various tools and techniques to make accurate forecasts, such as historical data, market research, and industry benchmarks. This blog post answers many of the commercial team's challenges when setting up the most productive forecasting process in a hotel group or an independent hotel.
Why is forecasting important to hotels?
- What is total revenue forecasting?
- Who is responsible for forecasting
- What are the challenges in forecasting?
- How much better is a system in forecasting than a human being?
- What are the benefits of replacing a human with a system?
- What should a hotel forecast?
- What does a typical hotel guest funnel look like?
- Forecasting using the guest funnel
- How can hotels forecast demand for overnight stays?
- How can a hotel find its ideal market segments?
- How many segments can a hotel realistically handle?
- What is the benefit for hotels to forecast by segment?
- What are the challenges for hotels to forecast by segment?
- How can a hotel analyze data to find its highest spenders?
- What are the benefits of focusing on high-spending guests?
- How do hotels onboard their guests?
- How can you upsell hotel guests?
- Forecasting is critical to managing a hotel successfully
What is total revenue forecasting in hotels?
Who is responsible for forecasting in hotels?
What are the challenges in forecasting demand for hotels?
- Seasonality: Hotels often experience fluctuations in demand due to seasonal factors such as holidays, weather, and local events.
- Economic factors: Economic conditions can impact demand for overnight accommodation, as travelers may be more or less likely to take trips based on their financial situation.
- Competition: The number of hotels in a particular area and the quality and pricing of those hotels can affect demand.
- Unforeseen events: Natural disasters, political instability, and other unexpected events can disrupt travel and impact hotel demand.
- Changing traveler preferences: Trends in travel, such as an increased interest in eco-tourism or the popularity of specific destinations, can impact hotel demand.
- Accuracy of data: Accurate and up-to-date data is essential for accurate demand forecasting, but collecting and analyzing data can be challenging, particularly for smaller hotels.
How much better is a revenue management system in forecasting than a human being?
What are the benefits of replacing the revenue manager with a revenue management system?
- Increased accuracy: Revenue management systems are designed to analyze large amounts of data and use complex algorithms to generate forecasts, which can make them more accurate than a human in some cases.
- Consistency: Revenue management systems are consistent in their forecasting, as they do not have the same biases or fluctuations in performance that a human might.
- Speed: Revenue management systems can process data more quickly than a human, which can help businesses make faster and more informed decisions about pricing and inventory.
- Cost savings: Implementing a revenue management system can save hotels money by reducing the need for a revenue manager or team of revenue managers.
- Improved decision-making: Revenue management systems can help businesses make more informed decisions about pricing, inventory, and other factors that impact revenue.
What should a hotel forecast?
- Occupancy rate: This is the percentage of rooms expected to be occupied over a given period. Forecasting the occupancy rate can help a hotel to optimize its room inventory and pricing to meet the anticipated demand.
- Average daily rate (ADR): This is the average amount of money a hotel expects to charge per room per night. Forecasting the ADR can help a hotel to identify opportunities to increase prices during times of high demand and make informed pricing decisions based on market conditions.
- Revenue per available room (RevPAR): A hotel that forecasts occupancy and ADR will automatically forecast RevPAR, which is calculated by multiplying the occupancy rate by the ADR. Forecasting RevPAR can help a hotel to understand its expected financial performance and to identify opportunities to increase revenue.
- Seasonality: Many hotels experience fluctuating demand due to seasonal variations in travel patterns. Forecasting demand during different seasons can help a hotel plan for variations in demand and optimize its room inventory and pricing accordingly.
- Group bookings: Hotels often receive group bookings from organizations or companies that want to book a block of rooms for a specific event or purpose. Forecasting group bookings can help a hotel to understand the expected demand from these types of bookings and to plan accordingly.
What does a hotel guest funnel look like?
- The market: The hotel needs to understand the demand, which means extensive knowledge about why people travel to the destination.
- Segmentation: Hotels cannot accommodate everyone traveling to the destination, so hotels must select market segments that best fit the hotel.
- Identify high spenders: Within each segment, guests spend differently. Hotels must decide which guests they would like to attract to the hotel. When the hotels have more knowledge about the potential guests, they can craft product offerings and campaigns to create awareness of the hotel.
- Awareness: The potential guest becomes aware of the hotel and its offerings. This can happen through advertising, word of mouth, or searching various channels, such as metasearch, social media, and online travel websites, for a place to stay.
- Consideration: The potential guest begins to consider the hotel as a possible option for their stay. They may research the hotel and its amenities, compare prices with other hotels, and read reviews from past guests.
- Decision: The potential guest decides to book a room at the hotel. They may do this through the hotel's website, by calling the hotel directly, or by using an online travel agent.
- Booking: The potential guest completes the booking process and pays for their room. This may involve providing personal and payment information and selecting room type and other preferences.
- Onboarding: The hotel can onboard the guest to the stay from the time of booking to the day of arrival. The hotel can prepare the guest for the stay in this window and sell additional products and services.
- Arrival: The guest arrives at the hotel and checks in. Here, the hotel has another opportunity to upsell the guest to a higher room type and promote other facilities in the hotel.
- Stay: The guest stays at the hotel and uses the hotel's amenities and services which brings in more revenue to the hotel.
- Departure: The guest checks out of the hotel and leaves. The hotel can now analyze how successfully it maximized the total spending per stay or guest.
- Feedback: The guest may provide valuable feedback on their stay through a review or survey, which may give the hotel useful information on maximizing average revenue per guest.
Forecasting using the guest funnel
How can hotels forecast demand based on travel reasons?
- Market research: Hotels can conduct market research to gather data on travel patterns and trends. This can involve surveying travelers, analyzing data from travel websites and booking platforms, and tracking industry statistics.
- Collaboration with travel industry partners: Hotels can work with travel industry partners, such as travel agents, tour operators, and airlines, to get a better understanding of travel demand and trends.
- Use of data analytics tools: Hotels can use data analytics tools to analyze historical data on bookings and occupancy rates to forecast future demand. These tools can help hotels to identify patterns and trends in travel behavior, such as the popularity of specific destinations or the impact of external events on travel.
- Marketing and promotion strategies: Hotels can work closely with destination marketing companies and use marketing and promotion strategies to attract travelers and increase bookings. For example, hotels may offer special promotions or packages targeting specific groups of travelers, such as families or business travelers.
- Local events and attractions: Hotels can also consider the impact of local events and attractions on travel demand. For example, if a city is hosting a major sporting event or music festival, this may increase the demand for hotel rooms in the area.
How can a hotel find its ideal market segments?
- Conduct market research: This can include gathering data on guest demographics, preferences, and behavior through surveys, focus groups, and other research methods. This information can help a hotel understand the needs and preferences of different market segments and tailor its marketing and sales efforts accordingly.
- Analyze customer data: A hotel can also analyze data on its current guests, such as booking and reservation patterns, to identify patterns and trends that can help it determine its ideal market segments.
- Identify target markets: A hotel can identify target markets by considering location, amenities, and pricing factors. For example, a hotel near a beach may target leisure travelers, while a city-center hotel may target business travelers.
- Use segmentation tools: There are also several tools and resources available that can help a hotel segment its market, including market research firms, customer relationship management (CRM) software, and industry-specific segmentation tools.
- Test and refine: Once a hotel has identified its target market segments, it can test its marketing and sales efforts to see how well they resonate with those groups. This can involve analyzing data on bookings, revenue, and other metrics and making adjustments to target better and serve the hotel's ideal market segments.
How many segments can a hotel realistically handle?
What is the benefit for hotels to forecast by segment?
What are the challenges for hotels to forecast by segment?
- Increased complexity: Forecasting rooms and ADR is complex in themselves. Adding another layer of detail will increase complexity exponentially and require substantial time and effort from the revenue management team.
- Lack of historical data: If a hotel is new or has not previously collected information on specific segments, it may be difficult to accurately forecast demand.
- Seasonality: Demand for different segments may vary significantly based on the time of year. For example, demand for business travel may be higher during the week and lower on weekends, while demand for leisure travel may be higher on weekends and holidays.
- Competition: Hotels may face competition from other hotels and vacation rental properties, making it difficult to forecast demand accurately.
- Changes in market conditions: Economic conditions, government policies, and other external factors can significantly impact demand for different segments.
- Limited forecasting tools: Many hotels need access to advanced forecasting tools, making it difficult to predict demand accurately.
How can a hotel analyze data to find its highest spenders?
- Analyzing customer spending patterns: By examining customer spending habits, hotels can identify guests who consistently spend more than others on things like room rates, dining, and other hotel services.
- Using customer loyalty programs: Many hotels have loyalty programs that track customer spending and reward frequent guests with free nights or room upgrades. By analyzing data from these programs, hotels can identify their top spenders.
- Analyzing customer demographics: Data on customer demographics, such as age, gender, income level, and location, can help hotels identify groups of guests who tend to spend more than others. For example, a hotel might find that business travelers tend to spend more on average than leisure travelers.
- Examining booking patterns: Data on how guests book rooms (e.g., through the hotel's website, through an online travel agent, or by calling the hotel directly) can provide insight into which customers tend to spend more on their stays.
What are the benefits of focusing on high-spending guests?
- Increased revenue: High-spending guests are more likely to book higher-priced rooms and spend more money on amenities and services during their stay, resulting in increased revenue for the hotel.
- Repeat business: High-spending guests are often more loyal and more likely to return to the hotel for future stays, providing a steady revenue stream.
- Positive reputation: Attracting high-spending guests can also enhance the hotel's reputation, as it may be seen as a desirable destination for affluent travelers. This can attract even more high-spending guests in the future.
- Upselling opportunities: High-spending guests may be more open to upgrading their rooms or booking additional services, providing opportunities for the hotel to upsell and generate additional revenue.
- Higher profit margins: Focusing on high-spending guests can also lead to higher profit margins, as these guests are more likely to pay premium prices for rooms and services.
How can you upsell hotel guests?
- Offer value-added amenities or services: The hotel can offer guests additional amenities or services that enhance their stays, such as a room upgrade, a spa treatment, or a meal at a hotel restaurant.
- Present options at the time of booking: The hotel can present guests with options for additional products or services, such as a package that includes tickets to a local attraction or a meal plan.
- Cross-sell related products or services: The hotel can cross-sell associated products or services, such as offering a rental car or tickets to a local attraction to guests booking a room.
- Provide personalized recommendations: The hotel can provide customized recommendations to guests based on their interests or needs, such as suggesting a nearby restaurant or activity the guest might enjoy.
- Use customer data: By analyzing customer preferences and spending habits, the hotel can tailor its upselling efforts better to match the interests and needs of individual guests.
How do hotels onboard their guests?
- Check-in: The guest arrives at the hotel and presents identification to the front desk staff. The staff will verify the guest's reservation and provide them with a room key and other necessary information or materials.
- Orientation: The guest is given a brief orientation to the hotel and its facilities. This may include a hotel map, information about their room's location, and details about amenities such as the pool or fitness center.
- Room assignment: The guest is taken to their room by a hotel staff member, who will show them how to use the room's features and amenities and provide any additional information or assistance.
- Welcome amenities: The guest may receive welcome amenities such as a basket of fruit or a small gift.
- Follow-up: The hotel staff may follow up with the guest later in their stay to ensure that they are satisfied with their accommodations and to offer any additional assistance or information.