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Forecast your Hotel’s Revenue for the Upcoming Season

Last updated on April 22nd, 2016 at 06:42 am

Businessman analyzing investment charts with laptop. Accounting

The concept of revenue management boils down to the optimization
of financial results. By analyzing sales trends and forecasting results,
using historical scenarios, price strategies are adjusted to maximize

It originated in the airline industry in the 1980’s, as they were trying
to optimize their financial results. Dynamic pricing was introduced to
grow revenue potential and financial results, through anticipating
and influencing consumer behavior and applying price
discrimnination. Robert Crandall, former CEO at American Airlines,
who first introduced revenue management, called it the “the single
most important technical development in transportation
management since we entered deregulation.”

No matter what size hotel you work in, all successful revenue
management strategies are based on the ability to forecast demand
accurately and, therefore, predict the optimal rate based on that
demand. This is where a demand-control chart can come in handy to
help determine when to change your rate based on demand,
separating the “hot” zones (high reservations-on-hand) from the
“cold” zones (low reservations-on-hand). Knowing how and when to
use a demand-control chart can enable you to plan your room rates
for top revenue every time.

1. Develop the Forecast

The best way to develop your forecast is based on past experience.
Take a look at your reservations from the last several years. What
was your demand? What was your actual occupancy? Using historical
data, you can make a pretty good prediction, or forecast, for what
the demand will be for the future.

For example, you may calculate the forecast for each day for the next
few months based on the same days for the past five years.

2. Determine the Trigger Points

Trigger points signal the opening or closing of a rate class—the hot
and cold periods. If the forecast predicts that demand will be above a
trigger point (a hot period), close (raise) the appropriate rate classes;
if predicted demand is below a trigger point (a cold period), open
(lower) the appropriate rate classes. Your firm may have multiple
trigger points. For our example hotel, our trigger points are:

  • Cold Period: 70% occupancy or below
  • Hot Period: 100% occupancy or above

3. Determine the Minimum Rate

Determine the minimum rate to quote based on the forecast and
trigger points. In this chart we have two trigger points: 70% and
100% (which makes 71%-99% occupancy our Warm Period). For each
hot, warm, and cold period, you will want to determine your
minimum rate.

Some of the definitions used to describe revenue management are:

  • Selling the Right Room to the Right Client at the Right Moment
    at the Right Price
  • The art of turning away business
  • Matching supply and demand

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