Hospitality KPIs are the right hand of a property owner when it comes to assessing the performance of their goals. They provide a clear picture of success, highlighting areas of achievement and opportunities for growth.
Average daily rate also known as ADR, is one of the important KPIs for revenue managers and property owners. This blog will delve into the details of the average daily rate (ADR), exploring its importance and how it is calculated.
What is the average daily rate (ADR)?
ADR, or average daily rate is a key hospitality KPI that reflects the average revenue per room in a set period of time. In most cases, it is calculated per day. This metric is essential among revenue management strategies, as ADR provides valuable insights into the hotel’s performance compared to other properties of similar size, location, and guest profile.
In some cases such as price changes, ADR can misrepresent the true revenue making it appear higher or lower. If a situation like this arises considering the occupancy can give you a more accurate number.
Why is ADR important?
ADR is one of the most easily calculated and effective ways to measure your revenue and performance. This can quickly lead you to your next step which is finding the right strategy for your property. This strategy is crucial for revenue management, as it provides insights into how to maximize revenue per room.
ADR can also bring your strengths and weaknesses to light, it does so by allowing you to compare your property with your competitors. Monitoring ADR trends over time also reveals shifts in market demand, guest preferences, and seasonal fluctuations. You can turn this to your advantage in your efforts to increase your ADR.
How to calculate ADR
You can calculate your ADR by simply dividing your total room revenue by the total number of rooms sold.
ADR = Total Room Revenue / Total Rooms Sold
Example of the average daily rate
Let’s say on Wednesday you sold 100 rooms and the total room revenue was $12,000. To calculate your average daily rate you use the formula above. When you divide the total room revenue by the total rooms sold you get your ADR. On Wednesday, your average daily rate was $120.
You can use this formula to calculate the average rate for any given day, helping you assess your revenue performance.
Key factors influencing the average daily rate
The average daily rate can be influenced by some factors, it can change the result. Managing these factors effectively ensures that the ADR is not only competitive but also aligned with market conditions and guest expectations. Here is a list of things that can affect ADR:
- Seasonality: Demand can increase or decrease according to the time of the year therefore in peak seasons ADR will increase.
- Location: Properties in a more desirable location can charge more per room.
- Competitor Pricing: The rate competitors set can directly affect the ADR as it makes the market more competitive.
- Room Type: Each room type can impact ADR differently; as rooms become more luxurious and offer additional amenities, the ADR tends to rise accordingly.
- Promotions and Discounts: Offering promotional rates or discounts can lower the ADR but may be necessary to fill rooms during low-demand periods.
- Length of Stay: Longer stays might come with discounted rates, decreasing the ADR
- Market Conditions: External factors like economic conditions, industry trends, or unexpected events can either drive up or suppress ADR based on changing demand.
How to increase your hotel’s ADR
The key to enhancing ADR effectively is that hoteliers must adopt a multifaceted approach that encompasses pricing strategies, guest experience improvements, and marketing efforts. These are some things you can do to increase your hotel ADR:
- Upsell premium rooms and services
- Enhance amenities
- Optimize pricing strategies
- Focus on direct bookings
- Target high-demand periods
- Improve online presence and reputation
- Offer packages and add-ons
- Leverage revenue management software
- Provide exclusive experiences
You can effortlessly adjust your room rates by using HotelRunner’s sales-oriented products and features and boost your ADR. Contact our team to find out how to increase your revenue.
