Forecasting is an essential part of effective revenue management. Not only is a forecast a prediction of potential outcomes, but also it’s a valuable tool that can be used to set strategies and tactics to improve expected results. Although forecast accuracy is an important goal, it is more important to take actions that will impact results based on the valuable information your forecast provides.
It would be safe to say most hoteliers are completing some type of short- and long-term forecasts. These often are a combination of operational, financial and demand forecasts. Many revenue managers have become proficient at producing accurate forecasts based on historical data, business trends and market conditions. As more and better data is available and technology continues to improve, revenue managers are better equipped to forecast accurately. The question becomes, is forecast accuracy enough? If the overarching purpose of revenue managers is to optimize revenue, shouldn’t they strive to make their forecasts somewhat inaccurate by improving results?
Revenue management leaders need to collaborate with other departments to find ways to proactively improve on the results originally forecasted. There are obvious strategies and tactics we can take to optimize revenue on peak days (increased rates, rate restrictions, length of stay restrictions) and low demand days (promotions, discounts). To separate from the pack and truly maximize potential, the hotel’s revenue team should constantly be looking for ways to improve results. Following are some strategies and tactics to consider in your efforts to positively impact results once the forecast is completed.
To maximize higher demand periods:
- The first and most obvious thing to do is review rates. Pay close attention to competitors and the overall market. Know your value proposition, your competitors’ strengths and weaknesses and use all of this to sell your value at a competitive market price. If you have established your value proposition, don’t be afraid to lead a rate increase in the market.
- Know where the demand is by segment and what channels are driving the bookings. If you have enough demand, determine if you can restrict some segments and limit certain channels to decrease booking costs or margins from a higher cost channel.
- Evaluate ways to limit liabilities. Who are your customers on that day or during that time period? If it’s a group, know the risks of early departure and what their history is. Ensure group blocks are netted appropriately and cut off dates are monitored. For all other business, look for ways to avoid cancellations, early check outs and no shows by using special guarantee/cancel policies or stay restrictions.
- Have clear expectations of where you should or would like to be at different time intervals leading up to the arrival date, and set strategies accordingly. Monitor booking pace as well as denial and turn down information. Ensure restrictions are having the desired effect.
- Focus on demand, not simply rooms on the books. Too often we make decisions based on how many rooms are sold rather than how many we expect to sell. Turning away business is not a bad thing if you have the demand for more favorable business, be it due to rate or stay pattern.
- Manage your product inventory. Ensure you are selling your suites and premium room categories. High demand days typically lead to upgrading guests to a higher room category. If you know demand will be high, limit overselling of standard room types so you can get the appropriate premium for your best room types.
For lower demand periods:
- Again, start by evaluating your rates and value proposition. Do you know your competitors’ weaknesses and how to move business from them? Do you have a clear value proposition that justifies your rate offering against your competition? What business is in the market, how is it booking and what rate do you need to capture the business? Don’t use discounting as the first response.
- Use a rate structure that allows you to quickly change and manage your rates. Rate management should be quick and as painless as possible. Where possible, don’t use extranets as they can inhibit the rate maintenance process. Work with online-travel agencies that give you the greatest reach without creating more work. The easier it is to manage, the more likely it will be maintained.
- Run targeted promotions. Your demand forecast will tell you when you need the business. Tailor your promotional activities to these specific periods. Use fences to ensure you are not trading down and target guests who are likely to stay during these time frames. Low demand periods are your best opportunity to try new offers and new ways of connecting with guests.
- Share the demand forecast with the sales department. A graphic representation of demand will provide the sales team with a quick view of when rooms are expected to be available. This can help to suggest alternative dates to groups inquiring about high demand dates.
- When it’s absolutely necessary to discount, look at running short-term sales such as a 24- or 48-hour sale. These often will generate a good deal of business in a very short window. Once the promotion is run, you might find you increased your base business to a level that allows you to increase rates.
- Flash sales are very popular. They can generate a lot of business over a short period of time, but the negative long-term effect of such a sale might outweigh the short-term benefits. When considering such a sale, look first at the potential of packaging. Understand flash sales typically do not lead to repeat business.
- Creatively bundle products and services. Rather than simply decreasing rate, find ways to bundle low-cost items into a package offering. It needs to be simple and appealing. Doing so will help to disguise any discount you gave off the rate and limit the loss in room revenue.
- Institute or reinforce front-desk upsell programs. By upselling to higher category rooms, you can increase average daily rate on lower demand days. To enable this, offer incentives to front-desk staff and/or offer special rates for day-of upgrades—if a club room is typically a $50 premium, offer it for $25. Ensure you are still covering the costs of any additional amenities and services included with the premium room categories.
When you start to use your forecast as a benchmark for improvement rather than a prediction of outcome, it becomes necessary to increase communication with your property team. Everyone must be aware of the forecast and what you are doing to change it. Set clear expectations and collaborate on the methods used to exceed expectations. Constant communication and forecast revision will ensure everyone knows the strategy and how to achieve it.
The forecast can become an even more powerful tool once the hotel team can use it to get better results. This is not to say revenue managers should sandbag the forecast. Expected outcomes of current strategies should be included in the forecast, but we should always be opportunistic and adjust strategies based on forecasted demand.
About the Authors
Jon Eliot, CRME is a seasoned Revenue Management professional with over twenty years of hospitality industry experience. This experience includes a variety of roles in revenue management, operations and sales at the property, regional, and brand levels. Jon serves as co-chair of the HSMAI Revenue Management Advisory Board.
Burl Hutchison, CRME is the Manager of Revenue and System Optimization for Sabre Hospitality Solutions where he is responsible for consulting with customers in the field of Revenue/CRS/PMS optimization and integration with PMS, CRM and RMS systems. In addition he provides guidance on best practices within the field of revenue management and manages a full-service revenue for hire program.
The opinions expressed in this column do not necessarily reflect the opinions of HotelNewsNow.com or its parent company, Smith Travel Research and its affiliated companies. Columnists published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to comment or contact an editor with any questions or concerns.
About the HSMAI Revenue Management Advisory Board
The Revenue Management Advisory Board leverages insights, emerging trends, and industry innovations to guide the development of products and programs that optimize revenue for hotels.
• Chris K. Anderson, Ph.D., Professor, Cornell University
• Bonnie Buckhiester, Principal, Buckhiester Management USA
• Shelia Cosgrove, Director, Revenue Management Ops & Planning, Intercontinental Hotels Group
• Kathleen Cullen, CRME, Corporate Director of Revenue Strategies, Heritage Hotels and Resorts
• Sloan Dean, CRME, Vice President of Sales & Marketing, Interstate Hotels & Resorts
• Kent Duncan, CRME, Vice President, Sales and Revenue Strategy, Marcus Hotels & Resorts
• Jon Eliot, CRME, CHA and co-chair of the HSMAI Revenue Management Advisory Board
• Tammy Farley, Principal, The Rainmaker Group
• Neal Fegan, Executive Director of Revenue Management, Fairmont Raffles Hotels International
• Rhett Hirko, CRME, Director of Revenue Analytics, Hyatt Hotels & Resorts International Operations
• Jay Hubbs, Director Hotel Supplier Relations, Expedia Partner Services Group / Hotwire
• Burl Hutchison, CRME, Director of Revenue Optimization, Sabre Hospitality Solutions
• Klaus Kohlmayr, Senior Director, Consulting, IDeaS Revenue Optimization
• John LeCoz, CRME, Regional Director of Revenue Management, Loews Hotels
• Mark Molinari, CRME, Corporate Vice President of Revenue Management and Distribution, Las Vegas Sands
• Orly Ripmaster, CRME, Senior Analyst, STR Analytics
• Scott Roby, CRME, Vice President, Revenue Management, Evolution Hospitality
• Chinmai Sharma, CRME, Vice President, Revenue Management, Wyndham Hotel Group
• Susan Spencer, Market Director - N. America, ChannelRUSH
• Trevor Stuart-Hill, CRME, President, Revenue Matters
• Paul Wood, CRME, CHBA, Vice President of Revenue Management, Greenwood Hospitality Group
Want to Learn More?
This topic will be addressed as part of the 10-part Revenue Management Webinar Series produced by the HSMAI University in partnership with HotelNewsNow.com and STR. Beginning 2012 February 12, and going through December, each month a webinar will cover various aspects of cutting edge revenue management in today's economy in conjunction with articles written by members of the HSMAI Revenue Management Advisory Board. If you’re not able to attend a live program, archives are available. Also, these and other timely revenue management topics will be the focus of the HSMAI Revenue Optimization Conference, colocated with HITEC, 25 June in Baltimore.