Calculate your Property’s ADR
Your Property's ADR is:
What is the Average Daily Rate (ADR)?
Average daily rate (ADR) is a key performance indicator (KPI) in the hotel industry, providing useful information about hotel performance. The hotel’s average daily rate provides hoteliers insight into hotel revenue, as it tells you how much, on average, you make from each room. It’s important to note that the metric includes only occupied rooms by guests, not employees. Complimentary rooms are excluded from the ADR metric, too.
ADR formula
The formula for calculating the ADR in the lodging industry is simple:
Total revenue from rooms divided by total number of rooms sold.
For example, if you were to generate $20,000 total from rooms you’ve sold, and your hotel has 200 rooms, the ADR calculation would look like this:
$20,000 / 200 = $100
The takeaway here is that you have an average daily rate of $100. You can use this figure as a benchmark for financial success, striving to better it with marketing, sales, and pricing strategies.
How to calculate your property's monthly and yearly ADR?
While ADR can certainly be used to provide you with a one-time barometer to assess current financial success, it can also help you track performance against your monthly and yearly hotel revenue management goals. It’s important to monitor hotel success over various time periods, to help you establish accurate projections and manage the business effectively.
For instance, if you were to take the numbers from room sales last month alone and plug them into the ADR calculator, you would be able to see how you performed at a glance. Continue to do this for previous months, and soon you’ll have a complete picture of month-to-month performance.
The same applies to annual performance. If you’ve completed a full year of business, renting out rooms for a calendar year, you can evaluate yearly performance which allows you to make forecasts for upcoming years.
Why is your average daily rate important?
Establishing your ADR is important because it lets you know just how much customers are willing to pay to stay at your hotel. This speaks volumes for the quality of the rooms you provide, the customer service, and the value-for-money.
While it isn’t the only metric that matters, the ADR can give you a clear idea of how profitable your rooms are. You can hold this figure up against your expenses such as operational costs to get an accurate picture of your business’s overall financial health.
4 strategies to improve your property's ADR
To boost your hotel room revenue you have to deliver an unforgettable guest experience. If your customers end their stay with nothing but positive things to say, raising rates becomes a viable pricing strategy for staying profitable in the long term.
Here are some ideas for improving your ADR:
1. Build a robust marketing strategy
Build your marketing strategy around your guest target market and cater to their expectations. Invest in guest experience marketing appealing to travelers’ preferences. Whether it’s family activities for staycationers, strong wifi for business travelers, or contactless services such as mobile check-in, digital messaging, and contactless payments. Ensure that you’re investing in both direct bookings and OTAs, and find the balance that drives the highest ADR.These practices will help drive higher occupancy rates and average revenue overall.
2. Use dynamic pricing
Dynamic pricing refers to the practice of adjusting your room pricing to reflect fluctuations of low and high demand.
Take the COVID-19 pandemic as an example of how to use dynamic pricing to your advantage: fewer people were traveling in the beginning, so lowering rates would have been a good move to book as many guests as possible. Or if your local market is booming (for example, because of a special event) and competitors are charging higher rates, leading to higher ADR, you might raise your prices accordingly and implement length of stay restrictions.
Adjusting your revenue management strategy to adapt to the market and your competition on any given day can help boost your ADR, since potential guests will see your rooms as reasonably priced for the area.
3. Gather reviews
In the hospitality industry, if you can get a steady flow of good reviews, you can create excitement around your hotel business and elevate your prices without putting people off. As such, executing strategies to gather more guest reviews can prove effective for boosting your ADR.
Common review collection strategies include the following:
- Soliciting feedback at the front desk
- Checking in with guests during their stay to make sure everything is satisfactory
- Sending out emails after a guest’s stay to request a review
- Convincing guests that their reviews help improve the hotel
You can also learn valuable information from guest reviews, which you can use to make changes to customer service, rooms, or the overall experience. Acting on guest feedback to make improvements is a great way to garner positive favor from guests and guarantee satisfaction.
4. Make data-driven decisions
Hotel management is made much easier when you make data-driven decisions, as your moves are backed by facts. Hotel operations can be streamlined, hotel profit boosted, and market positioning perfected with the clever use of data.
Business intelligence generally refers to the act of using data analysis to execute business strategies. For example, if you find out the average hotel room price in your area, what is your response? Taking decisive action is key to staying one step ahead of the competition, and data is one of the most powerful tools you have at your disposal.
Check out our Revenue Management Guide for more strategies surrounding dynamic pricing, setting stay restrictions, and tactics for increasing revenue.
The difference between ADR and Average Room Rate (ARR)
In the hotel industry, there are several similar metrics that are easy to confuse. Take average room rate (ARR), for example, which may appear to offer the same information as the ADR. There is a key difference between the KPIs, though:
To calculate ARR, you can use the following formula:
Total room revenue divided by the total number of rooms occupied
Say your total room revenue for a single month is $20,000, and you had 60 rooms occupied in that time. Here’s what the ARR calculation would look like:
$20,000 / 60 = $333
The difference between ADR and RevPAR
While the ADR provides a solid indication of how much you could make per room sold, it doesn’t tell you if you’re successfully booking rooms at that rate. For a more detailed breakdown of financial performance, you’re going to want to calculate the revenue per available room (RevPar), too.
RevPAR is a useful metric for ascertaining whether the ADR is working for you, or if you need to adjust your prices. For example, if your ADR is $100, but your RevPAR is lower than the occupancy rate, you can deduce that customers aren’t willing to pay the rate, or your marketing could be refined.
ADR multiplied by the occupancy rate
By multiplying your ADR by your occupancy rate, you’ll figure out how much you’re making per room accounting for the number of rooms you’ve actually sold. If we stick with the earlier example, where your business has an ADR of $100, and we assume that the occupancy rate is 85%, your RevPAR calculation would look like this:
$100 x 85% = $85
The difference between ADR and Average Rate Index (ARI)
So you have your ADR and your RevPAR figures, now what?
To evaluate the financial viability of your hotel and calculate long-term success, you need to see where you stand in the market. After all, it isn’t just your own prices you’re competing with, but the average price of your competitors’ rooms.
That’s where the average rate index (ARI) comes in. With the ARI, you can better understand how your hotel fares when compared with your closest competitors. More specifically, ARI pits your ADR against the competition’s, so you can get a feel for the lay of the land. The ARI figure will generally fall between the range of 0-1, though it can be greater than 1. Whether your figure is higher or lower than 1 tells you if your pricing is more, or less, expensive than that of your competitors.
To calculate ARI, use the following formula:
Hotel ADR divided by Comp Set’s ADR
If you wanted to find out the ARI of your comp set, here’s what that might look like in practice, assuming that your ADR is still $100 and that of your comp set is $125:
$100 / $125 = 0.8
The figure, in this example case, is lower than 1 which means your prices are slightly lower than that of your competition. If the figure were to be above 1, you’d know that your prices were higher than the competition. You can use this information to inform your pricing and sales strategies.
Final thoughts
Calculating your hotel’s ADR can give you a clear indication of the financial health of your hotel, and the revenue you’re bringing in per room. The free Cloudbeds ADR calculator takes the stress out of the equation, leaving you to focus on what matters: managing your business and keeping your guests happy.
