Study the past, if you would divine the future. ~ Confucius
Your budget represents your first forecast for the year. How do you make that forecast as accurate as possible? It starts with a deep dive into the past. One of the most important elements of your hotel budget planning process is examining accurate historical data – what worked, as well as what didn’t work – in order to end up where you want to be by the end of 2019. Here are some key considerations when it comes to analyzing your historical data and creating your budget for the coming year.
Create a Demand Calendar
One of the first steps to take before beginning your budgeting process is to establish a roadmap by creating a demand calendar. Analyze historical demand patterns and booking data, combined with holidays (religious and secular) and events that impacted your demand. This allows you to determine how much revenue each event will generate and make informed pricing decisions based on solid data and statistics. It’s important to bear in mind that some holidays land on different dates/days of the week from previous years.
You can further break down your demand by market segments. Is the higher demand that’s forecasted for the third week in June coming from your leisure or business segments? In addition, it’s important to examine how much compression will occur from specific events. For instance, a large national convention in town may have less of an impact on your revenue than several smaller local festivals and events.
A powerful tool for analyzing your own market and organization’s trends is a detailed examination of your historical performance over the past three to five years. This reveals seasonal fluctuations in both revenue and expenses. Start with realistic data, and leverage year-over-year (YOY) insights to gain a big-picture view of how your business is changing. Look at historic key performance indicators (KPIs) such as average daily rate (ADR), occupancy, and revenue per available room (RevPAR) for your hotel versus your comp set. Combine this information with what you have in your pipeline and balance it against economic conditions and industry data to help determine if your budget makes sense. Looking at your property’s performance across multiple views helps you make realistic and defendable decisions concerning your hotel’s future performance.
Explore Past Performance
Understanding performance over time will help you build a solid foundation for your budget process. Start by laying out day by day performance as a seasonality curve for a minimum of three years. Are there outliers in certain years? If so, do you understand the cause of those outliers? This will allow you to adjust the upcoming budget to accommodate these anomalies. Each year, add to this chart and highlight the anomalies and the causes. This will give you facts as opposed to relying on memory, to include this vital information into your budgeting process. Historical data provides you with clear facts to support the numbers for each day, week, and month.
Understanding the behaviors of each guest segment over time helps you to know what to expect from them in the future. For instance, analyzing historic pick-up pace from your business traveler segment may help you see that for a typical Tuesday you pick up approximately 50 rooms during the two weeks prior to arrival. Further divide your historical guest data by purpose of visit, distribution channel, and booking patterns to help you understand the “why” behind data sets.
Budgeting is essentially a business plan with numbers. Your 2019 budget creates the base you’ll use for business planning throughout the rest of the year. And nowhere is historical data more crucial to consider than during budget season. But don’t get so lost in the numbers that you forget to keep your business objectives in mind throughout the process. You want a budget that is a stretch, but not too much of a stretch. Using the right historical data allows you to build a strong case for your budget – guiding you to make informed decisions – better decisions – leading to more profitable results.