#2 business case: forecast sales before launching your activity

Like many entrepreneurs, you had to take the plunge and that's it, it's done: you're launching your tourism activity! You have the location, you have in mind the type of service you want to offer. But now you need to put some numbers on all of this. If when it comes to forecasting sales, the anxiety of the blank page suddenly hits you, you've come to the right place.

Below is the simple methodology to apply to ensure you forecast sales correctly. Of course we will turn a blind eye if you inflate them for your banker. But at least you will have for yourself a basis of what your activity can really produce in the first year.

For this second business case it is Maëlle who tells us about her activity: she is launching her ecological lodge in a town in the west of France. Predicting sales is important, especially because this city is very touristy, and experiences many events throughout the year.

---

Please note: this article is part of my 52 week challenge . This case is real but for confidentiality reasons the first name has been changed and the city is not mentioned.

---

1 – Why forecast sales before launching your business?

Obviously forecasting sales is indisputably useful for a business plan, but forecasts also have many other virtues and uses.

Objective 1: the business plan

Forecasting sales in a business plan allows you to anticipate the profitability of the project or cash flow needs.

The specificity of a service activity for which revenue management is practiced is that the price varies. Thus the turnover is determined using two criteria: the volume of sales achieved and the price asked for each sale . Unlike product sales for which the estimation of turnover involves almost exclusively the estimation of volumes.

For each distinct period of your activity, simply multiply the displayed price for that period by the sales volumes you anticipate. You can divide the periods by month or by type of period: high season/low season.

If you have a large professional clientele , with whom you wish to negotiate preferential prices, add a notion of segmentation (see “Determining the right segmentation” below). In this case, you must do the exercise twice for each type of period.

• Professional forecast (by period): professional price (multiplied by) estimate of professional sales volumes
• Leisure forecast (by period): public prices (multiplied by) estimate of public sales volumes

Objective 2: set yourself an ambition

As with any business, the sales forecast is also a way of reflecting on one's ambition and setting objectives . Whatever the market trends, we can obviously always choose to follow them, or surpass them. On Airdna for example (an excellent site for obtaining statistics on Airbnb sales in your market) the statistics are broken down into percentiles as follows:

You can absolutely decide to aim for a performance similar to the worst 50% or target 90% from the start . Please note: to make this decision it is very useful to have carried out a study of your strengths and weaknesses versus the competition. The SWOT in particular is very relevant (see below “Crucial preliminary work: estimating your strengths and weaknesses compared to the competition”).

Objective 3: establish your revenue management & pricing strategy

Forecasts are to revenue management/pricing what yeast is to the baker: they determine the quality of what follows !

In fact, based on the expected level of sales per week or per day, you will be able to answer the following questions:

• What price do I display?
• Am I considering promotional actions?
• What about imposing a minimum length of stay?
• Accept or refuse a group at a preferential price
• etc.

The objective is twofold:

• Anticipate weak periods by lowering prices , not placing restrictions on inventory and launching actions to stimulate demand
• Anticipate peak periods by increasing prices/or placing restrictions to maximize turnover

Objective 4: establish your revenue management & pricing strategy

Once you have your sales forecasts and your daily pricing & revenue management strategy, all that remains is to come up with an ideal allocation of your resources.

Establishing your marketing and sales strategy during the most needy periods will be essential.

Objective 5: monitor and anticipate your own performance

Once your activity has started, forecasts are a fantastic performance monitoring tool. They make it possible to alert ourselves when the expected trends are not the right ones and to launch the necessary action plans.

To be properly aware of your activity, it is important to monitor your sales through two different prisms:

• Sales by customer arrival period : sales for arrivals in June for example
• Sales by customer purchasing period : sales made in June

You will thus be able to assess whether the sales issues are linked to a particular sales period at a given arrival time. (For example: impact of elections on purchases or impact of a marathon on the arrival period). 

2 – How to forecast sales before launching your business?

Preparing forecasts for a newly opened hotel is not an easy exercise. Even for revenue management professionals. Usually for a company that already has an existing business, the simplest method is to rely on a reference service similar to the one you are launching. We therefore take the sales of the reference service, to which we apply upward or downward hypotheses, depending on the differences in service, customer positioning or location.

But let's get back to our point: we don't have the luxury of having a reference product! So how to do it?

Forecasting sales must be done in terms of occupancy rate

First of all, our best tool for forecasting sales will be the occupancy rate . This indicator is crucial for monitoring your activity (see glossary ) because it offers the advantage of being usable directly for your own activity . For example: knowing that hotels sell an average of 10 rooms per night is not very useful because their capacity may be different from ours. On the other hand, knowing that they have an average occupancy rate of 70% is directly applicable to our activity.

Crucial preliminary work: assessing your strengths and weaknesses versus the competition

Thinking that forecasting sales is statistical & purely scientific work is a mistake. As mentioned above, there is always human bias .

This is why you need to be very clear about your position in the market , your competitors and your opportunities. These are the elements that will allow you to have the sharpest possible vision, and therefore the most accurate forecasts possible.

The points to cover are those of SWOT : strengths, weaknesses, risks and opportunities . These points relate to both your position in the market and the market itself.

Furthermore, you must carry out an analysis of the competition and your position in relation to competitors : level of service, geographical position (very important for your customers), price, mainly professional or leisure customers, etc. This will allow you to determine whether you are in a position of strength or rather a challenger.

You can obviously be in a strong position in certain market segments and rather challenge others (eg: be leader during the week for professional customers but rather challenge on weekends for family customers). It is your analysis that will allow you to determine this.

It is with this information that you will know whether you should be realistic or ambitious with your forecasts.

Gather your market figures

To forecast sales, the external data you can collect will be crucial. The more numerical information you obtain, the more detailed your analysis will be.

Here are sources of information :

• Macro trends in the market: Insee, chamber of trades, market research (some are available on the web)
• Local tourism figures: tourism office, local professional organizations
• Airbnb performance in your city: Airdna
• Data distributed by professional organizations (for example Gites de France)

These sources will allow you to obtain the following information:

• Evolution of overall demand
• Customer booking time in your market
• Occupancy rate & average price in your market (by percentile on Airdna )

Gather the events that impact demand for your hotel or apartment

Next, it is necessary to establish a list of the most impactful events . The possible sources for establishing the list are very varied: tourist office, general websites like Events Eye or specialized ones like Congrès Medical for medical events for example.

How to determine if an event is impactful ? It must be large enough to drastically increase the demand for housing in your city ; see that the demand for housing is greater than the available supply of housing.

In this regard, your geographical location matters a lot . A small event can have a huge impact on you (without impacting the rest of the city) because you are located within walking distance of the event location.

Finally, the type of clientele can also play a role : if you have accommodation that is very suitable for professional clients (apartment with self-check-in or hotel with free wifi and few family rooms) your accommodation may well benefit from the increase in demand ( while other types of housing do not benefit from it).

Determine the right segmentation

Segmenting your demand is a vast subject that is absolutely crucial to properly optimizing your pricing & revenue management strategy. This subject will be the subject of a separate article.

The objective of segmentation is to offer the best conditions, to the right customers, at the right time and according to their way of traveling.

Here are some examples of ways to segment your customers that are used in tourism today.

Segmentation according to:

• The type of clientele : professional versus leisure
• The reservation channel : sales made directly versus online on the own site versus online on partner sites, etc.
• Related to the product : deluxe, classic or family rooms versus normal rooms.

Forecast sales of Maëlle’s gîte

So in concrete terms, how did I forecast the sales of Maëlle's cottage?

---

Please note that I carried out the exercise month by month because the aim is above all to share the methodology but within the framework of your activity it is best to carry out the exercise day by day.

---

I gathered the following elements month by month :

• Type of month (high demand, medium demand, high demand): source Airdna
• Customer reservation time Airdna
• Impactful events : multiple web sources
• Tourism market trend : Deloitte market study
• market occupancy rate Airdna ) by room type and percentile

We agree to segment by month and room type for the exercise; but a finer segmentation could be carried out by type of demand (pro/leisure).

For the first 6 months of launch : demand is average over 3 months and low over 3 other months. The reservation time remains rather long: 30 to 45 days. In my opinion, the “wisest” option is to refer to the performance of the 50% worst (50th percentile ). A launch remains a challenge, especially when demand is not very strong.

For the rest of the year (the following 6 months) demand is rather good and the activity will already have been in operation for 6 months. Sales could have been anticipated. It therefore seems realistic to me to follow the worst 75%: 75th percentile .

Compared to market trends and important events, the assumptions are consistent. With this global base Maëlle will be able to readjust the figures more precisely by applying her ambition as a manager.

Once the forecasts have been made, we have established a draft pricing by type of room and by type of period which thus allows us to obtain the forecast turnover for the gîte.

See you in a few months to assess together whether these forecasts were adequate.

---

If you would like to contribute to this challenge and give me one of your current issues: do not hesitate to write to me in the comments!

Please note: I sign a confidentiality clause with my interlocutors. Names and cities may be modified to comply with this clause.

---