20Jun

Revenue Optimization Tip #1: Ensure You're Working Off of an Accurate Forecast

Author: Rainmaker

In its simplest form, a revenue manager’s job is to develop a pricing strategy for a hotel that will
boost revenue. A critical first step in creating a revenue management strategy is to forecast future
demand. Even if the goal is not full occupancy, there is a need to understand upcoming demand
to determine what prices various customers will be willing to pay on a given night. But how can
you do that if you aren’t working off an accurate forecast?

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A good first step is looking at your history. Ideally one calendar year is available to see an annual
pattern. Two or more years of historical data is better. The more information available, the better
managers will understand the demand and booking patterns for their specific property. Of course,
historical data is not enough. Revenue managers must look at booking data on an ongoing basis:
if not daily, then weekly, depending on the size of the property and the complexity of the business
mix. As the forecast gets continually updated based on new data, revenue managers can refine
their strategies to make the best decisions regarding rates, availability, and restrictions.

Demand forecasting is one of the cornerstones of revenue management. It is critical for revenue
managers to understand upcoming demand to project occupancy, revenue, and operational
needs. Critically, demand forecasting predicts how many rooms would be booked on a
given day if there were no constraints; this is often referred to as unconstrained demand.

The forecast generated by an RMS should provide a picture of the total, unconstrained demand for
future dates to recommend the best price. To produce the most accurate forecast, you must
account for things such as historical patterns, marketing promotions, seasonality, and events. It’s
imperative that the forecast is updated daily (even intraday) to adjust for these changes as well as
updates in bookings and competitor activity. The forecast can then be shared with marketing to
identify periods of low demand and use promotional offerings more tactically, helping you achieve
your performance goals in terms of revenue and profit.

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