What is hotel ADR?
ADR, or average daily rate, represents the pulse of your hotel’s financial health. Describing the average income per occupied room your hotel makes in a set period of time, this statistics helps to paint a clear picture of your revenue landscape and the overall performance of your business. In a time when hoteliers are still navigating the challenges of economic recovery post COVID-19, looking to grow their business, and striving to outshine the competition, ADR becomes more than crucial; it becomes a strategic ally.
Average daily rate (ADR) remains an important metric to talk about within the hotel industry. Data is becoming ever more valuable as hoteliers look for ways to recover from economic setbacks, grow their business, and gain an edge over the competition; so ADR is often crucial.
This blog will provide a comprehensive guide to ADR, including why it’s so important and how your hotel can improve it.
Table of contents
Why is ADR important in the hotel industry?
ADR is a quick and effective method of measuring your hotel’s performance. By looking at ADR, you can easily start to strategise ways to boost your bookings and revenue.
You can use ADR to forecast for specific weeks, months, or seasons, and then set performance goals for your business – making plans to improve any areas you thought you could have done better in the past.
For example, if you look at your historical ADR figures and identify trends, you’ll start to understand your market better, as well your property’s seasonality.
What is the ADR formula for hotels?
The formula for ADR is generally presented as room revenue / number of rooms sold.
For example if your hotel earns $5000 from 20 rooms sold, ADR = $250.
You can apply this formula for any set time period you choose.
How to calculate ADR
The best way to calculate ADR is to use the above formula. You can also use an online calculator which will let you make a number of calculations quickly and easily.
Try it for yourself by using SiteMinder’s free ADR calculator.
Factors that affect hotel average daily rate
Managing the average daily rate (ADR) is a crucial aspect of your hotel’s revenue strategy. It’s not just about the final number; it’s about understanding the factors that shape that number and how you can leverage opportunities and mitigate risks. Here’s what you need to know:
Location is a factor in practically all hotel operations, and ADR is no exception. If your hotel is in a prime area or near major attractions, you’ll likely command a higher rate. It’s essential to consider how the convenience and appeal of your location influences your pricing, as well as how you can best leverage the uniqueness of your location to differentiate yourself from the competition and secure more bookings.
Seasons change, and so will your average daily rate as a result. Peak tourist seasons, holidays, and even specific weekdays can affect your ADR. Compare your ADR over a weekend during summer to a winter Wednesday to see what we mean. Knowing how your ADR changes season by season will help you best understand how to adjust your rates and strategy to stay competitive throughout the year.
Your competitors’ pricing strategies can influence your ADR. Regularly monitoring what similar hotels are charging helps you position your hotel strategically in the market, ensuring that your pricing aligns with your brand and offerings. Even for luxury hotels, it’s a fact that price is one of, if not the most, important factor in whether a guest chooses to book with your or your nearest competitor.
Hotel type and reputation
Your hotel’s category and reputation in the market play a vital role in determining your ADR. Depending on your audience, guests Luxury amenities, guest reviews, and ratings all contribute to how much guests are willing to pay. Building and maintaining a strong reputation allows you to command higher rates.
Special events, conferences, or festivals near your hotel can all spike demand and thus ADR. Being proactive and aligning your pricing and marketing strategy with these events can create opportunities to increase your ADR during those periods.
Good or bad economic conditions can impact how much your guests are willing or able to spend on particular aspects of their travel experience, accommodation included.
Different booking channels come with unique costs and benefits. Balancing these channels and understanding their impact on your net ADR is key. Encouraging direct bookings and managing commissions from OTAs can help you maintain a healthy ADR.
Understanding your guest segments allows you to tailor your pricing to different types of travellers. Whether it’s business travellers, families, or solo adventurers, offering targeted pricing ensures that you attract the right guests at the right price.
How to increase ADR in a hotel?
You can increase your hotel’s ADR by raising your room rates. However, simply increasing room prices isn’t always the only, or best, option.
Here’s a list of 8 simple tactics you can try at your hotel to increase ADR.
1. Focus on increasing the spend from high-value guests
Your OTA channel partners will have data on which guests deliver higher ADR on average, such as business travellers or couples travelling for leisure. You can then strategise on how you target these segments.
2. Track the overall economy and market demand
By keeping track of market fluctuations you’ll have a better idea of when you can raise prices, by how much, and for how long.
3. Keep an eye on the competition
By analysing and tracking your closest competitors, you’ll be able to find points of difference that allow you to boost your price. You’ll also see when they are changing their rates and decide if you should or can do the same.
4. Upsell and cross-sell
Giving guests the option to upgrade and buy extra items or services at the point of booking will help drive up the spend from each individual guest, in turn boosting your ADR.
5. Use promotions and packages
Incentives like discount promotions and all-inclusive packages can allow you to increase your occupancy rates. With higher occupancy, you have more chances to win revenue from guests during their stay.
6. Offer extended stays
Find ways to keep your already sold rooms occupied by enticing guests to stay an extra night; perhaps by offering them a free meal and drink at your restaurant.
7. Personalise wherever possible
By personalising your service you’ll build a stronger relationship with guests. This makes it more likely that they will spend extra, leave positive reviews, and come to stay again.
- Work hard on your online reputation
The better your reviews and online reputation is, the higher your conversion rate will be. This means your cost of acquisition will decrease and the guests who stay with you will be highly motivated.
How to set KPIs for your hotel average daily rate
It’s unlikely your ADR will remain steady through a month or year, as there are many factors that can influence it. It’s important to understand all the potential impacts on ADR so you can know how to respond.
Some KPIs that will tell you more about how you can optimise ADR include:
- Events in your area
- Seasonal travel trends
- Global economic factors
- Traveller behaviour changes
- Naturally occurring events such as the weather
- High and low demand periods
- Channel performance
By looking through these lenses, you’ll have a much clearer overall picture of your business and how ADR relates to that.
For instance, if you’re in a high demand period but your ADR isn’t increasing you need to figure out why and how you can remedy it.
It’s also important to remember ADR only tells part of the revenue story at your hotel. For example, a higher ADR doesn’t necessarily mean more revenue for your business – ADR might go up but it doesn’t help if your occupancy has gone down.
Boost hotel ADR and unlock your full revenue potential with SiteMinder
Navigating the complexities of hotel ADR doesn’t have to be a solo journey. With SiteMinder, you have a partner that’s committed to helping you reach your revenue goals. Here’s how we can help you grow your ADR:
- Smart, up-to-date analytics. Our innovative software provides real-time insights into competitor pricing, allowing you to adjust your room rates in real-time. Stay ahead of the competition and respond to changes as they happen.
- Simple channel management. Get access to over 450 OTAs, all managed on a single platform. Update a room rate once and see it roll out across hundreds of listing sites.
- Powerful personalisation options. With built-in deal personalisation and automated guest communication, you can offer guests the deals they’re most interested in, at the time when they’re most likely to buy.
Get started for free or watch a demo to learn more.