If you’re starting a hotel or working on increasing revenue for an existing one, you’ll need to understand the concept of Average Daily Rate or “ADR.” In this article, we’ll explore what ADR is, why it’s important, and how you can calculate it for your hotel.
What Is the Average Daily Rate?
So, first of all, let’s discuss what it actually is. The average daily rate is quite simply the average rental income per paid occupied room on a given day. This figure includes revenue from room rentals, ancillary services, and any other miscellaneous sources. It’s important to note that this is different from your hotel’s occupancy rate, which only looks at the number of rooms rented out as a percentage of the total number of rooms available.
Why Is the Average Daily Rate Important?
Now that we’ve answered the question “what is ADR,” you might be wondering why it’s such an important metric for hoteliers. After all, doesn’t occupancy rate have just as big of an impact on your bottom line? While it’s true that occupancy rate is important, ADR calculation gives you a more holistic view of your hotel’s success. Here’s why:
- It allows you to compare revenue across different time periods. For example, if your occupancy rate is the same in January as it was in July, but your ADR is higher in July, that means you’re generating more revenue overall.
- It’s a good indicator of pricing strategy effectiveness. If your ADR is increasing, but the occupancy rate is staying the same, that means you’re successfully raising prices without losing business. On the other hand, if the occupancy rate is dropping along with ADR, that could be a sign that you’re pricing yourself out of the market.
- It takes into account revenue from all sources, not just room rentals. As we mentioned before, ADR includes ancillary services and other miscellaneous income sources. This gives you a more accurate picture of how much revenue your hotel is actually generating.
How To Calculate the Average Daily Rate for Your Hotel
Now that we’ve gone over what ADR is and why it’s important let’s move on to the fun part: calculation! There are two ways you can calculate your hotel’s ADR.
The first method is fairly simple: just take your total rental income for a given period of time and divide it by the number of days in that period. So, if you generated $10,000 in revenue from February 1st to February 28th, your ADR would be $357.14.
The second method is a bit more complicated, but it gives you a more accurate picture of your hotel’s overall performance. To calculate ADR using this method, you’ll need to keep track of the following data points:
- The number of rooms available each day
- The total room revenue for each day
- The number of rooms sold each day
Once you have this data, you can use the following formula to calculate ADR:
ADR = Total Room Revenue ÷ Number of Rooms Sold
For example, let’s say your hotel had the following data for a five-day period:
Day 1: 100 rooms available, 80 rooms sold, $5,000 in total room revenue
Day 2: 100 rooms available, 90 rooms sold, $6,000 in total room revenue
Day 3: 100 rooms available, 95 rooms sold, $7,000 in total room revenue
Day 4: 110 rooms available, 100 rooms sold, $8,000 in total room revenue
Day 5: 120 rooms available, 110 rooms sold, $9,000 in total room revenue
To calculate the ADR using this method, we would take the total room revenue for each day ($5,000 + $6,000 + $7,000 + $8,000 + $9,000 = $35,000) and divide it by the number of rooms sold (80 + 90 + 95 + 100 + 110 = 475). This gives us an ADR of $73.68.
So, which method should you use? It depends on your preferences and your data. If you want a quick and dirty estimate of your ADR, the first method is probably sufficient. However, if you want a more accurate picture of your hotel’s revenue, we recommend using the second method.
How To Increase Your Average Daily Rate
Now that you know how to calculate ADR, you might be wondering how you can increase it. After all, a higher ADR means more revenue for your hotel, which is always a good thing! Here are a few strategies you can use to increase your ADR:
- Offer packages and discounts: One of the easiest ways to increase ADR is to offer packages and discounts. For example, you could offer a 10% discount for guests who stay more than three nights, or a weekend package that includes breakfast and a late check-out time.
- Upsell guests: Another great way to increase ADR is to upsell guests on higher-priced rooms and services. For example, you could offer an upgrade to a suite for an additional $50 per night, or add on a spa treatment for $100.
- Increase prices: This might seem like an obvious solution, but it’s worth mentioning. If you want to increase ADR, you can simply increase your prices! Of course, you’ll need to make sure that your prices are still competitive with other hotels in the area, but a small price increase can go a long way.
- Put empty rooms on discount sites: This is a great way to fill up your hotel while still getting some revenue from rooms that would otherwise go empty. And, if you offer a significant enough discount, you might even be able to increase ADR by attracting guests who wouldn’t have booked a room at your hotel otherwise.
- Improve marketing: Finally, don’t forget that marketing plays a big role in ADR. If you want to increase your hotel’s ADR, make sure you’re doing everything you can to market your hotel effectively. This includes things like creating a strong branding strategy, using social media, and running targeted ad campaigns.
Final Thoughts
We hope this article has helped you better understand the average daily rate and how to calculate it. Remember, ADR is an important metric for any hotel, so it’s worth taking the time to understand it. And if you want to increase your hotel’s ADR, there are a number of strategies you can use, from offering discounts and packages to increasing prices and improving marketing.