10 Steps To Develop a Data Driven Forecast
Everyone knows that a Revenue Manager needs only two things… a calculator and a crystal ball.
And the crystal ball is when the fun starts…
As an industry, we know there are several ways of forecasting and as revenue professionals, we may be asked to contribute to:
An operational forecast – which typically helps individual department manage costs and staffing or
A financial forecast – typically required by finance to predict spend and costs
However, Revenue Managers tend to much more comfortable creating a demand forecast.
The best place to start to create a demand forecast is with great data but even that can seem a daunting place to start, so let’s break it down…
1) Define your market segments (no, market segments are not dead…)
The best place to start is by ensuring you have defined your market segments. Hotels often get caught up in creating WAY too many market segments (and I say again, Booking.com is not a segment!!!). A market segment is simply a way of grouping customers together that behave in a similar way - lead time and price point being the two main drivers. Please don’t let your marketing team overwhelm you with too many market segments. Track only what you can measure and what drives strategic decisions – the rest is quite simply a waste of time.
2) Track historical behaviour
A good way to assess this is to consider ‘what is normal’. This is a great way to understand, where you are… where you should end up, and what might happen in between. And the best place to start is by tracking what has happened in the past. You of course will need to adjust (as with everything in life, things change) but tracking what has happened in the past is the best place to start. Let’s face it, Mondays in January behave a certain way as do Saturdays in July – it is simply about identifying patterns of behaviour.
The data to look at could be:
Rooms sold by segment
ADR – average daily rate
RevPar – revenue per available room
Occupancy
Lead time
Length of stay
Booking source
Remember that each segment will pick-up at a different time and of course, our goal is to ensure that we always have enough rooms left for the high-value guests who typically book at the last minute (not always, but typically). Our role as Revenue Managers is to decide which business we should take, at what rate, and at what point in time. Historical behaviour will help you work out those patterns. In revenue terms, this will create a booking curve, so you can understand when demand is predicted and at what rate.
| Corp Neg | Mon | Tue | Wed | Thu | Fri | Sat | Sun | TOTAL |
|---|---|---|---|---|---|---|---|---|
| Rooms | 10 | 15 | 18 | 20 | 4 | 1 | 6 | 73 |
| ADR | £82.59 | £88.66 | £87.23 | £89.14 | £85.23 | £84.66 | £81.54 | £85.58 |
| Revenue | £825.9 | £1329.9 | £1570.14 | £1782.8 | £340.92 | £84.66 | £489.24 | £6423.56 |
| Leisure | Mon | Tue | Wed | Thu | Fri | Sat | Sun | TOTAL |
| Rooms | 27 | 33 | 36 | 54 | 62 | 89 | 76 | 377 |
| ADR | £82.59 | £88.66 | £87.23 | £89.14 | £85.23 | £87.67 | £81.54 | £86.01 |
| Revenue | £2229.93 | £2925.78 | £3140.28 | £4813.56 | £5284.26 | £6197.04 | £6197.04 | £32393.48 |
Creating a very simple track of where your business normally ends, and at what rate will help you determine if you are on track: ahead or behind.
3) Adjust for market changes
We all know that business trends have changed significantly over the past few years with the pandemic, Brexit, staycation craziness and the recession, all in the mix for us apportioning blame to our current state of flux. Few hotels have escaped a new trend in buying behaviour, so new lead times and pricing impacts (positive and sometimes negative) will need to be considered. Add this to an increase in cancellation rate, a reduction in length of stay; and a shift in booking channels and this does add complexity to tracking and measuring, but these adjustments will need to be made (if I can go back to the fundamental of ‘where are we now’ and ‘where should we end up’) And if tracked correctly, even new trends will show patterns…
4) Layer on external data
I am a huge fan of ensuring that you have your own house in order before allowing external factors to influence pricing. Events and holidays will of course make an impact, along with where you sit within your competitive set but again, judge this with caution. Time and time again, I see pressure put on revenue professionals as owners ask ‘why are we selling at £140.00 when X Hotel is sitting at £120.00’. There are so many factors to consider before taking a cut-throat decision on changing price because of competitors - (https://www.rightrevenue.co.uk/blog/dont-be-a-sheep) but in its most basic form, adjusting your pricing based on an arbitrary number, with no fact or substance behind it, is quite frankly lazy revenue management.
5) Review both internal and external trends
Do you see certain segments behaving differently and do you need to adjust? As an example, do you see your corporate market being squeezed due to restricted budgets? Is it time to speak to your sales team? Or perhaps you are seeing a shift in your American business due to new flight routes. Has your wedding business increased or decreased? Do you have more or less events happening in your area? If we go back to Step 2 – the idea here was to get a barometer of behaviour. Now as you start to understand the data ie lead time, price points, and segmentation behaviour, you can start to make adjustments in your forecast plan.
6) Build your forecast.
Start with predicted rooms and then occupancy by market segment. Your planned ADR multiplied by your rooms will of course then give you a revenue total. Do this by segment, by day of week and then by month. This will help build up a pattern for the month which in turn will then give you a month total for each segment and a grand total at the end of each month.
| Mon | Tue | Wed | Thu | Fri | Sat | Sun | Average/Week | Totals | |
|---|---|---|---|---|---|---|---|---|---|
| Corporate Neg | |||||||||
| Rooms | 20 | 25 | 26 | 32 | 33 | 34 | 10 | 26 | 180 |
| ADR | £123.45 | £122.66 | £104.54 | £102.45 | £106.88 | £112.33 | £112.34 | £112.09 | £20,176.71 |
| RevPar | £103.14 | £96.24 | £101.34 | £102.18 | £110.23 | £144.45 | £103.12 | £108.67 | |
| Occ | 12 | 12 | 14 | 15 | 22 | 23 | 26 | 18 |
7) Now take a step back
This is just the start. once you have the data, then take a step back and look at how realistic your forecast is. Plan for scenarios – worst case and best case. What would your forecast look like if you were 10% ahead or behind? Remember, that this is a forecast. It should be flexing and changing as your business ebbs and flows. It is important to apply your opinion but always, always go back to the data. The data will show patterns and changes. Use the data to help form and support your decisions.
8) Move the dials.
This is where the magic can happen. You may need to add revenue to your bottom line, but as in the old saying, ‘there is more than one way to skin a cat’, you can add revenue by perhaps increasing occupancy in a particular segment. However, you can also add revenue by keeping the same number of total room nights but simply shifting your business mix.
9) Use your voice.
Gone are the days where Revenue Managers sat in dark rooms and had a reputation of being the ‘data geek’ (a title by the way that I was always very proud of). You may have an owner or someone in finance who asks for X% up on last year with no substance behind that decision. A data driven forecast will give you the information you need to challenge or agree. You will have all the information you need at your fingertips to back up why you are making certain strategic decisions. Take your seat at the head of the table. You are commercially driven and you need to be heard.
10) Have a coffee!
After doing all of this, you will definitely need a sit down and a KitKat (there are other chocolate bars of choice of course) but seriously, this takes a HUGE amount of work, so try your best to persuade the powers that be, that a data-driven and agile forecast, which helps shape the financial success of your hotel, is best managed with tech. An unashamed plug of course for Right Revenue but let tech do the heavy lifting, so you can plan the strategy.
In conclusion
A well-blended hotel segment forecast involves a mix of historical data, current market insights and advanced forecasting techniques. Regular updates are crucial as your business ebbs and flows. Get ahead of this and you will absolutely improve your profitability.
And for more information about how Right Revenue might help, please just ask@rightrevenue.com
