Hotel managers and other industry professionals use valuable metrics daily to automate and sharpen the necessary day-to-day tasks and to improve revenue management. If you’re already familiar with hotel argot, you’ve probably heard of ADR.
The ADR from a hotel (Average Daily Rate) is the average daily rate for a room during a given period, in a few words, is the average price guests pay for a room. This is a key indicator in hotel management, since it allows to know the average income per occupied room in a period of time and, therefore, the performance of the hotel establishment. In this post, we will go into more depth about this key KPI for the industry, how to calculate it and how to apply it, so keep reading!
What is ADR for hotels
The Average Daily Rate is a metric used to calculate the average daily rate for an occupied room in a specific period of time. For managers in the hotel sector, ADR is key to measuring the performance of their establishment.
Undoubtedly one of the keys of good hotel management is the correct use of the main metrics and how to use them to increase hotel revenue. And although the RevPAR is the KPI with more relevance in the management of the hotel industry, the ADR rises in positions. In fact, they are directly related. These average daily rate metrics are intended to help hotel owners to better identify problems and opportunities to design more profitable pricing strategies.
The ADR gives us useful information about the profitability of a hotel. The average daily rate of a hotel allows one to know its profits or benefits, since it indicates the average income per room. It’s an indicator that allows us to know how much guests pay for a room. That is, its average sale price. If the ADR goes up, it means that the accommodation income does too. The results of the ADR allow calculating profits and income, and thus applying the necessary improvement margins to increase the profitability of the business.
How to calculate ADR
Like any other KPI, it is important to know how to calculate it correctly in order to carry out good revenue management. To calculate the ADR, you just have to divide the total revenue from rooms by the total number of rooms sold. Let’s see it.
Hotel ADR formula
The exact formula is the following:
Earned income / Occupied rooms = ADR
For example, if you generate a total of 30.000 euros with the rooms that have been reserved and your hotel has 300 rooms, the ADR calculation would look like this:
30.000 / 300 = 100 euros per room
That said, your average daily rate is 100 euros. You can use this figure as a reference point to optimize your hosting revenue management, to know where to focus your marketing and sales efforts, and how to improve your pricing strategy.
To control ADR in the best way, it can be very interesting to have a Property Management System (PMS). A technological software that allows us to know the guests’ habits and the way in which they spend their money. Useful information that helps to develop more attractive offers for our potential guests, to maximize income during the dates of greatest demand and to manage low seasons.
How to increase the ADR of your hotel
Now that you know how it is calculated and what to use it for, we are going to see options to increase this metric. The most obvious is to implant a good dynamic pricing strategy, but there’s more:
- Design a solid marketing strategy.
- Offer customized packages for different types of guests.
- Offer discounts for extended stays.
- Implement and use Big Data.
- Be present on social networks.
The Average Daily Rate is an essential metric for any hotel manager, since it allows us to know the average price customers pay for a room. Super relevant data to be able to optimize strategies to increase the revenue management of any hotel establishment.