by Kim Campbell
Of all the KPIs used to measure a hotel's success, three of the most popular are occupancy rate, RevPAR, and ADR. These metrics can be used to monitor a property’s overall performance, its revenue growth over time, and how it stacks up against the competition. In this post, we explore the latter — hotel ADR.
First, we take a look at what exactly hotel ADR is and why it matters. Then, we walk you through how to effectively analyze your ADR, set revenue goals that will increase profits, implement targeted marketing strategies to boost your hotel’s average daily rate, and more.
Defining hotel ADR The definition of hotel ADR is simple: It stands for an average daily rate, and it's used to measure the average revenue that a hotel receives for each occupied guest room per day. By measuring the ADR for your property, you're able to see the average rate that comes from all occupied rooms. A hotel’s ADR includes discounted rates, group rates, best available rates, and all other price points per night.
With this information, revenue managers are able to see which rates they can expect on a given day of the week, a specified month, or even an entire season. Tracking ADR, monitoring fluctuations, and setting rate goals with ADR in mind will allow hotels to increase ADR, revenue, and overall gains.
Calculating hotel ADR Determining ADR is actually a very simple process. A hotel's average daily rate is calculated by dividing the revenue earned from room sales on any given night by the number of rooms sold that night. It’s important to note that the number of rooms sold does not include out-of-order rooms, complimentary rooms, or overnight staff rooms. It also doesn't include a hotel's total available number of guest rooms.
Below, we’ve included a few examples of ADR calculations for reference:
Hotel 1: $11,516.30 in nightly revenue / 85 rooms sold = ADR of $135.49
Hotel 2: $8,160.00 in nightly revenue / 119 rooms sold = ADR of $68.57
Hotel 3: $27,841.43 in nightly revenue / 234 rooms sold = ADR of $118.98
ADR fluctuations: Causes and Concerns ADR can and will fluctuate throughout the year, and these changes can be caused by a variety of different factors. By understanding the events, seasons, and travel patterns that influence your unique market, you’ll begin to see patterns develop for your property and set rate structures that maximize profits during on- and off-seasons. Common reasons for hotel ADR fluctuations:
Special events and blackout dates
High corporate travel
High demand and shoulder seasons
Climate and other weather-related complications
Setting ADR goals Hotels should set ADR strategies with the overall goal of increasing hotel revenue. Before setting goals, hotel managers and revenue managers should complete a detailed analysis of their year-over-year (YoY) numbers to identify patterns, and missed opportunities, and confirm booking policies for potential high-demand travel times. When analyzing your YoY numbers, look at ADR through a variety of lenses:
Seasonal travel (peak, shoulder, and slow seasons)
Special events and blackout dates
Highest vs. lowest occupancy periods
Day of week (DOW) travel
Length of stay (LOS) patterns
Rate structure options
Run reports, create spreadsheets, and look for dates or booking patterns where you missed out on ADR opportunities last year. Set goals for increasing ADR and segment your goals based on weekday vs. weekend travel, quarterly objectives, annual targets, and seasonal demand. Focus on the factors that most influence your hotel’s booking patterns.
Consider this: Was there a time period with low occupancy and ADR, but high RevPAR? Or perhaps a specific day of the week that followed that pattern? If so, your rate structure may have been too high during a low occupancy time.
Were there high-demand times during special events or area-wide sellouts where a higher ADR could have been captured? If so, you may want to consider implementing a higher rate structure and stricter booking policies for high-demand dates.
ADR and your comp set In addition to tracking your performance YoY, hotels must also watch, track, and set their ADR goals with the competition in mind. Setting a goal ADR outside of the average ADR for your area will likely put you at a disadvantage against comp-set hotels.
While your rate goals should be ambitious and focused on maximizing revenue, your rates should still put you in fair competition with comparable hotels in your market. Setting rates that are too high, with the hopes of increasing ADR alone, will drive business directly to your competitors. Group ADR Groups and group businesses make up a large portion of many hotels' market mix. By nature, group rates are typically offered at a discount. On high-demand group weekends such as regional swim meets, tournaments, or youth sports travel, you may see a lot of group business filling the hotels in your area.
Strive to drive more group revenue while maximizing ADR. When setting group strategies, keep factors like group discounts, occupancy caps, area demand, and your best available rate structure in mind. Balancing these factors will determine your group ADR as well as your overall hotel ADR.
Review your YoY group data and ask yourself these questions:
Were there dates where discounted group rates displaced more profitable business? Should you take a group during that time this year?
What is your group room cap?
During certain seasons, do you offer more discounted group rate rooms than others? If not, should you?
Were there dates where you had a lot of group business so you sold a high best available rate (BAR)? Did that strategy work? If not, how should you offset your group strategy during that event this year?
Before setting group rates or group policies, consider the competition. Complete a group rate shop at area hotels, and use Cvent’s Competitive Set Dashboard to see what your competition is providing. Consider your competition's property age, room type availability, star rating, and available benefits. Ensure that your group rate strategies aim to improve your hotel’s performance against itself, as well as against the competition.
Hotel ADR strategies to avoid Some of the easiest rate mistakes hotels make usually center around the desire to increase rates and, in conjunction, ADR and RevPAR. While selling at higher rates may seem like an obvious way to increase ADR and hotel profits, it can also do the opposite. When you’re not priced fairly with your competing hotels or offering a significantly better experience, travelers may lean towards more affordable options.
By attempting to increase your ADR numbers, you may end up driving business directly to comparable hotels around you. Travelers hunting for a hotel online often use search terms like “hotels in Houston” when booking travel. If your property is priced higher than many others, it will be easy for potential guests to identify that information quickly and move on to other hotels offering preferential overnight rates.
Strategies to increase hotel ADR Drive more business and increase your hotel ADR by focusing on successful marketing strategies.
Make add-ons available for purchase. Create packages and add-on options that make travelers feel like they’re getting more bang for their buck. By including meals, event tickets, or an in-room welcome basket add-on, hotels can increase the revenue they receive per booking, adding to higher ADR numbers.
Drive add-on purchases. Once a hotel has created packages, they can drive add-on and package purchases by promoting local events and attractions, as well as focusing on upsells and upgrades.
Personalize your marketing. Personalized marking can lead to higher conversion rates because travelers feel directly targeted. When a promotion, package, or property markets itself to meet all of your needs and promotes amenities that appeal to your travel requirements, you feel as if they’re speaking to you personally. Market to pet owners, sports groups, leisure travelers, and corporate travelers with tailored marketing for each segment.
Offer extended stay discounts. Extended stay discounts are generally used to target leisure travelers and other guests looking to explore your area. This is appealing to guests interested in longer stays for larger discounts. Extended stay discounts are doubly productive as they help increase hotel revenue per guest as well as help increase occupancy numbers over needed dates.
Be diligent about maintaining your online reputation. Managing a professional and active online presence is key for driving more business to your property and, in turn, increasing ADR. Respond to online reviews, post captivating content on social media, and keep your information up-to-date and consistent across all platforms.
Check your property management system and arrivals list regularly. Running and analyzing your hotel revenue reports consistently is essential to maintaining and increasing ADR, but don’t rely solely on reporting. Check your property management system and review your arrivals list daily. Identify which discounts, group, and corporate rate codes are checking in. As this becomes a habit, you will start to notice booking patterns that could lead to ADR opportunities. You should also scan the week and month ahead to identify dates with a high number of discount stays on the books. Would it be helpful to increase your rate on those dates?
Frequently asked questions about hotel ADR
Why does ADR matter? ADR is important because it's one of the most commonly used elements for measuring a hotel’s performance, YoY improvements, and analyzing rate positioning against competing properties.
Can I increase ADR by raising rates? Yes, but under the right circumstances. Don’t raise rates unless the area demand justifies it. Utilize your hotel’s performance data and focus on specific opportunities for ADR improvement instead of overall rate increases.
What is a fade rate? A fade rate is a daily rate that hotel revenue managers can set with their guest service staff in an attempt to capture as much business as possible on a given night. For example, if your hotel’s best available rate is $109, you may set a fade rate of $99 with your staff. If your staff senses rate concerns with a guest or a caller state the rate is too high, agents can offer an established fade rate to increase occupancy while also keeping ADR goals in mind.
Is my hotel's ADR too low? If your hotel ADR is consistently ranking lower than the competition’s, it's likely that you’re not executing effective rate strategies. Hotels must research the market and see if the overall ADR trends are low, or if it’s specific to their property, and develop strategies accordingly.
Put this hotel ADR guide to use today! Remember, ADR is one of the most common — and important — metrics in the hospitality industry. Therefore, it's essential to have a firm grasp on your property's specific numbers so you can adjust accordingly.
Kim Campbell Kim is a full-time copy and content writer with many years of experience in the hospitality industry. She entered the hotel world in 2013 as a housekeeping team member and worked her way through various departments before being appointed to Director of Sales. Kim has championed numerous successful sales efforts, revenue strategies, and marketing campaigns — all of which landed her a spot on Hotel Management Magazine’s “Thirty Under 30” list. Don’t be fooled though; she’s not all business! An avid forest forager, post-apocalyptic fiction fan, and free-sample-fiend, Kim prides herself on being well-rounded.