How to get started with total revenue forecasting

13 January 2022
The focus for hotels has always been to sell room nights since the core business provides accommodation. Before the pandemic, many hotels had the ambition to optimize the revenue for all sources, but it wasn't easy to get started. The primary reason was that the business kept coming in, and everyone was happy.

During the pandemic, hotel companies realized that every single source of revenue mattered to survive. When fewer people traveled and needed accommodation, hotels could sell other products and services to a local target group. Hotels created new products and services and managed to test the market for these new offerings. With a few exceptions, it did not make much difference since the purpose of a hotel is hard to change from providing accommodation to something else. The pandemic has been an eye-opener that other revenue sources such as MICE, Food & Beverage, and Spa contribute considerably to total revenue and profits.

Step by step to get started

It isn't easy to become a professional in any role or industry without proper education and training. The way to success includes many small steps of learnings, mistakes, adjustments, and epiphanies. The first step towards total revenue management is total revenue forecasting. For many hotels, even this first step might be a challenge. Here are a few steps to get started.

Analyze all revenue sources

Analyze the revenue mix in the hotel. The largest source of revenue is most likely the room revenue, and most hotels already have a forecasting process for rooms and room revenue. Identify other significant revenue sources, such as meetings, food & beverage, spa, and others. Take a look at the big picture, and do not get lost in details.

Define forecasting categories

What makes sense to forecast? As always, it depends. A hotel with many F&B outlets might find that it makes sense to forecast each outlet. For example, a hotel with one large restaurant might want to forecast breakfast, lunch, and dinner separately. A hotel with a few meeting rooms might want to forecast meetings, including meeting room rental and food & beverage.
 
In contrast, a hotel with many meeting rooms might want to forecast room rental and food & beverage separately. Start with broader and fewer categories. Otherwise, it will get too complex and become too difficult to get started.

Collect data

Collect and analyze historical data to find patterns. For example, if more guests stay at the hotel, more guests will eat dinner in the restaurant. Some revenue sources will directly relate to the number of occupied rooms or the number of guests in the hotel. If you understand these correlations, it will be easier to forecast. If the restaurant is popular with the local market and does not depend on hotel guests, look for the day of the week pattern to make forecasting easier.

Who is forecasting?

The revenue manager is the forecasting expert in a hotel and has more skills and knowledge than any other person in the hotel. However, the revenue manager might not be as familiar with food & beverage and spa as hotel rooms. An F&B manager might better understand F&B forecasting since this revenue source derives from other behavior than hotel rooms. The best way forward is to collaborate in the forecasting process.

Systems and tools

Use Excel or a similar tool to experiment with total revenue forecasting. Excel is suitable for modeling, but it will be too time-consuming to build models and formulas if hotels have the skills. Still, this will give some first-hand experience of the structure of total revenue forecasting.
 
Demand Calendar has a module for total revenue forecasting that is very easy to use and keeps track of pick-up and the outcome. Demand Calendar is probably the first system for total revenue forecasting for hotel companies operating one or several hotels with complete consolidation of forecasts over a cluster of hotels or for all hotels in the company.

Next steps

Total revenue forecasting is the starting point to be in the driver's seat of your business. A reasonably good forecast will show the management where they need to add commercial activities to reach revenue goals and the expected profits.