What Does ADR Mean for the Hotel Industry?
From RevPAR to GOPPAR formulas, the hotel industry is known for utilizing a number of KPIs in order to measure performance and determine the rate of financial success. One key analytic that hoteliers routinely rely on is ADR, which stands for Average Daily Rate.
Using ADR, hotels are notably able to determine the average revenue they receive per occupied guestroom. This not only includes revenue from rooms sold to individual guests at full price but also consists of discounted rooms and group sales.
Why is ADR Important?
As a metric that allows hoteliers to identify the financial value that each occupied guestroom brings in, ADR plays a central role in devising hotel revenue management strategies and ensuring that they can deliver on profit margin goals. With ADR, hoteliers can determine what sort of rates they can expect to set in order to maximize incoming room revenue.
Using ADR, hotel businesses can crucially ensure that the rates they set are in line with market expectations. This sidesteps the risk of overcharging guests which can ultimately lead to a decrease in reservation numbers. Just as importantly, ADR can also prevent hoteliers from underselling rooms which only eats into room revenue performance.
ADR Formula: How do You Calculate it?
Fortunately for hoteliers seeking to get the most revenue out of each guestroom, calculating ADR is typically a straightforward and easy process. Hotel businesses simply need to divide revenue earned from room sales on a specific night by the number of rooms sold on the same night being analyzed.
This essentially leads to the following formula that is universally used across the hospitality industry regardless of a hotel’s location, size or guest demographic:
ADR = Room Revenue / Number of Rooms Sold
To further demonstrate how ADR is calculated, included below are a couple of examples:
Hotel Example One: $15,500.63 in revenue on one night / 90 rooms sold on same night= $172.23 ADR
Hotel Example Two: $6,000 in revenue on one night / 110 rooms sold on same night= $54.55 ADR
ADR Use Cases
In addition to providing hoteliers with a projection of what their room rates will look like for a specific day, month or time of year, ADR possesses several other valuable use cases for benchmarking performance:
- Projecting Incoming Revenue
As an analytic providing insight into the profitability of each occupied room, ADR can supply hoteliers with an estimate of how much revenue they can expect to receive during a specific day, month or season. Using such information, hotel businesses can not only estimate their level of profitability but can also better plan budgets based on available financial resources.
- Identifying Rate Trends and Patterns
ADR can also uncover unique room rate patterns that may take place during specific times of the year. This includes seasonal travel or the presence of events and conferences that can have an influence on guestroom demand. By arming themselves with ADR analytics, hoteliers can anticipate these fluctuations in order to set rates that maximize hotel profitability.
- Benchmarking Against the Competition
As a highly competitive market, the hotel industry also frequently utilizes ADR to analyze how room rate performance compares to properties situated within the same market. By analyzing the ADR of competing businesses, hoteliers can notably identify which ones they share a similar ADR with and therefore, which ones are likely to be targeting the same guest demographic.
What is a typical ADR for Hotels?
While ADR does fluctuate considerably between different properties depending on several factors such as the number of guestrooms or a hotel’s luxury rating, the industry does keep track of industry averages that hoteliers should strive to at least match.
With much of the industry now recovered from the worst days of the pandemic, average ADR continues to reach new impressive heights. As of April 2022, for example, the average daily rate rose to $149.90, a 14 percent increase when compared to the same period in 2019.
Tips for Increasing Hotel ADR
To maximize a property’s ADR performance, the key goal of a hotelier should be to increase the amount of revenue earned from each guest. This is where a hotel’s upselling strategy comes into play.
- Boosting Guestroom Upsell Performance
Using advanced upselling technology, hoteliers can leverage the latest in automation to instantly push room upgrade recommendations to guests prior to arrival and while they are still making decisions on travel plans. Significantly, such solutions also leverage AI to push targeted promotions aligning with specific guest preferences, maximizing sale conversion rates.
- Expanding Upselling Strategies to Include Ancillary Offerings
With more robust upselling platforms, hoteliers can even extend their upselling efforts to include ancillary offerings such as meal plans and amenity rentals. Using the same advanced AI to personalize such promotional offerings in line with individual guest interests, hoteliers can make full use of all revenue-generating streams to push their ADR performance to new heights.
Maína is the Head of Business Development Americas at UpStay. She graduated in Hotel Management and in German language and completed an MBA in Digital Marketing and E-commerce. She is a professional from the hospitality industry with experience as Distribution Director of a Brazilian group of 30 hotels and the Americas Director of an international Sales & Marketing representation company.
Maína considers herself an excellent communicator. She is a native speaker of Portuguese and speaks 4 other languages: English, Spanish, French, and German.