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Revenue Management: The Importance of Group Forecasting

The Importance of Group Forecasting

In general, hotels have two primary types of business: transient and group.

NB: This is an article from Rainmaker

While the vast majority of hoteliers have some form of a revenue management (RM) strategy in place to profitably manage room capacity, group forecasting is often not a key part of that , and even when it is, it’s often a manual process that’s subject to human error.

Manual approaches used to forecast groups tend to see a 40 percent mean absolute percentage error at two months prior to arrival, and even projecting one month out there is still a 30 percent error. An automated approach to group forecasting not only eliminates manual error but has the capability to provide daily updates on changes in demand and the market, significantly improving accuracy and revenue management of group business.

Group Forecasting and RM

Until recently, standard revenue management approaches have focused primarily on how group business affects transient – with relatively little examination into what types and how many groups are yet to book. This leaves some pretty big holes in your total hotel optimization picture. Group forecasting addresses these holes, helping hotels understand the full revenue potential of their business mix across all segments. Group demand – analyzed by market segment and size – is optimized in conjunction with transient demand, serving as an important input into optimizing your overall segment mix.

Group forecasts also provide a more complete displacement analysis for all segments. Transient displacement analysis only reveals a break-even rate for rooms, not accounting for function space or ancillary spend. And transient displacement only accounts for a prospective group displacing transient. It does not account for the fact that one group could be pushing out other groups in the pipeline.

A scientific group forecasting solution helps you not only evaluate group demand against transient displacement but determines if a group will displace other more profitable groups that are yet to book. This ensures that a hotel ultimately only accepts the most profitable business at any given time, regardless of source. In addition, an advanced group forecasting solution factors in elements such as a group wash, attrition, and cancellation, so that a hotel will understand what demand from an original RFP will actually materialize.

Group Forecasting Impacts Transient Yielding

Group forecasting impacts your transient business and plays an integral role in your profit picture. When yielding transient business within certain capacity constraints, hotels may simply remove on-the-books group blocks from capacity, before optimizing transient demand or price. And traditional methods also overlook the fact that there may be other groups still to book. This leads to reactive price adjustments when additional rooms are contracted. The right group forecasting solution allows you to better yield transient demand in light of anticipated capacity net of groups. This allows you to more proactively price your transient business, and it even helps your sales team negotiate stronger group rates relative to best available rate (BAR).

For a revenue management strategy to be truly effective, you must include inputs of both transient and group forecasts. If a group forecast is inaccurate, then the number of rooms you expect to have available will also be inaccurate. And your RMS pricing recommendations will lead to poor decision-making and suboptimal results.

Why Group Forecasting Matters

By forecasting for group business, you eliminate the risk of holding too many rooms at a negotiated rate and displacing higher-value customers later in the booking window. Plus, an advanced group forecasting tool helps you accurately anticipate periods of constraint on available rooms, which in turn allows you to capture higher rates from transient customers as well as other groups. Furthermore, group forecasting functions along with a picture of all revenue streams associated with a group, including meeting space and catering spend. This helps you accurately identify the total profitability of a potential group.

Group business includes meetings/convention groups that utilize both sleeping and meeting rooms, as well as local catering groups that typically require only function space. A group forecasting solution not only improves yielding on sleeping rooms but allows you to yield function space as well. With the right tool, you can leverage the flexible booking horizons of local catering groups – using them to fill idle function space once you have other group and transient business on the books.

Group business is growing in importance. And making RM decisions for groups is much more complex than forecasting solely for transient business. The trouble is, most RM solutions are only designed for transient. To optimize availability and pricing for guest rooms, meeting rooms, and ancillaries – and improve overall forecast accuracy – you need a state-of-the-art RMS with group forecasting capability.

By utilizing a flexible, sophisticated tool, you’ll more accurately forecast future group business compared to manual and other approaches and have a more complete view of displacement that accounts for both displaced transient and group demand. You’ll also be able to employ more proactive transient pricing that anticipates not-yet-booked groups. When used effectively, group forecasting is estimated to provide a lift of 2 to 2.5 percent of total hotel revenues.

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