What is the ADR and how to increase it?
There are plenty of indicators in the hospitality industry and they ought to be mastered by those working in that industry. Those KPIs are important and allow a hotel to increase its revenue and overall performance. Among the most important ones is the ADR, representing the Average Daily Rate.
What is the ADR?
The Average Daily Rate is a hospitality industry indicator which allows to measure the average income per paid occupied room. It is not the rate at which a room is sold, but the average room rate across all rooms sold. This is one of the most important performance indicators because it provides insight into the revenue generated through room sales and the overall revenue. Although this is a major indicator, it cannot be the only indicator you look at to get an accurate view of your hotel’s business. The ADR must be viewed in conjunction with your occupancy rate and RevPAR, among others. All of these indicators will give the hotel manager a very precise understanding of the hotel’s performance.
How to calculate the ADR?
In order to calculate the ADR, you must have data on the total revenue generated by sold rooms as well as the number of rooms sold, no matter the room type or category.
The calculation of the ADR is therefore : ADR = revenue from rooms sold / total number of rooms sold
For example: the owner generated 1000$ of revenue and sold 8 rooms. The ADR can be calculated as follows: 1000/8=125$. Therefore, the average rate of sold rooms is 125$.
While the ADR can be calculated manually, in most cases it will be automatically calculated by your Property Management Software (PMS) as all the data required to calculate the ADR is continuously collected by your PMS.
How to increase your ADR?
You can increase your ADR through multiple strategies
- Adjust your pricing
The ADR is proportional to the sale price, therefore pricing has a direct impact on it. A Yield management strategy could allow you to increase your ADR globally.
Increasing your pricing overall will also have a direct impact on your ADR. While this is not a strategy in of itself but rather a pricing policy, this increase can be normal and linked to inflation in which case it would not represent a real ADR increase.
- Offer a unique experience
Guests who experience a unique stay are inclined to spend more. Based on this observation, offering a new experience or enriching your current offers are concise and direct actions which can help you increase your ADR.
- Incentivize consumption
One strategy could be to always offer a superior room. This has an immediate effect on increasing your revenue and your ADR as superior rooms will have higher rates. Therefore, you can ask your front desk staff to always offer the superior room if it is available, no matter if you offer it at its true or discounted rate. If the customer accepts the superior room, the additional amount they will have spent will have a positive impact on your ADR.
You can also implement this strategy in your online booking engine. At the time of booking, the customer can be offered the superior room by displaying only the difference in amount between the chosen room and the superior room.
- Personalize your clients’ stay
Knowing the habits of your customers, particularly through your Property Management Software, will allow you to target your offers according to their needs and interests. Personalization also allows you to build customer loyalty and to always offer them the opportunity to discover your range of superior rooms using their stay history stored within your PMS.
- Conduct regular competitive intelligence
Monitoring your competitors’ advertised rates will allow you to position yourself in relation to them and to offer a competitive rate. Your reputation and customer satisfaction will allow you to charge an advantageous rate in regards to your competitors. Indeed, you will be able to justify a higher rate using your hotel’s ratings, your customer reviews and your online reputation.
The ADR or Average Daily Rate is a key indicator for a hotel manager who wishes to analyze their hotel’s performance. Increasing the ADR of a hotel is a daily and long term work, which can be achieved by implementing some if not all of the strategies that we have previously mentioned. It is therefore crucial to involve your staff in order for them to have growth objectives and also to come up with multiple ideas that could increase your hotel’s ADR.