It is very important for any company within the hospitality industry, such as hotels, B&Bs, inns, or guest houses to follow metrics that indicate their financial health. The average daily rate or hotel ADR is one of these metrics every manager should calculate and pay close attention to.
Knowing the ADR helps hoteliers find ways to increase revenue and overcome economic setbacks. Tracking its value gives them a better overview of what’s working and what’s not within their business strategy, and if necessary, course-correct it for better results.
In this article, you will learn the essentials about hotel ADR —what it is and how to calculate it— as well as 5 ways to increase its value.
What is hotel ADR?
The ADR measures the average income generated by a room during a given period, usually monthly. When calculating the ADR you don’t count complimentary rooms, vacant rooms, or rooms that are used by your staff.
The ADR formula is very simple:
ADR = Rooms Revenue / Number of Rooms Sold
NOTE: The bigger your ADR the better for your business.
Example: Your hotel has three types of rooms, standard, double and deluxe. The average revenue for each of them during the past month was $100, $150 and $200 respectively. In the same month, you sold 5 standard rooms, 3 double rooms and 1 deluxe room. So, during this period your total revenue was $1150 for 9 rooms sold. Now, adding this data to the formula above we have that your hotel ADR was $127,78 for the past month.
ADR = $1150 / 9 = $127,78
If you prefer, you can use this online calculator to measure your ADR.
According to Little Hotelier, these are the average ADR for hotels in different parts of the world:
- US – $130.40
- AUS – $160
- Asia Pacific – $106
- Europe – €139.42
- Middle East/Africa – $140.97
- Spain: €112.80
Use this information as a benchmark for your hotel ADR. If your values are way too below the ones listed above, it’s a signal that you should invest in ways to improve your numbers.
Why hotel managers should calculate the ADR?
This metric is key for your revenue management strategy. It is not only easy to calculate, but it also helps you understand how much your target guests are spending during their stay, and how your hotel is performing against the competition.
When you track it regularly, it gives you important insights into the periods of the year you should expect an increase or reduction in your revenue. This is crucial for you to plan actions in advance to boost your results or repeat successful strategies that were used in the past.
Once you have consistent data regarding your guests’ expenditures you can strategize ways to increase your ADR. This is what we are going to discuss in the next section.
Ways to increase your hotel ADR
Increasing the revenue brought by your guests is desirable for any business in the hospitality industry.
You might be thinking that raising your room rates would solve the problem, unfortunately, it’s not that simple.
Never rise your prices without a previous study! It might affect important metrics for your hotel, such as the occupancy rate and the revenue per available room.
There are more efficient ways to increase your revenue per customer and we are going through them now.
1. Focus on direct bookings
Probably your rooms are listed on different online travel agencies (OTAs), which is not bad, more distribution channels equals more guests to your business. However, OTAs charge high commissions, which negatively impact your hotel ADR.
If you want to increase your ADR, you should focus on your direct sales channels, such as your website. Use your marketing budget to promote it rather than pushing traffic to OTAs. They already make huge investments in marketing, which is the reason why you don’t need to promote them.
Moreover, when a guest book through your website they are leaving their data. This information is essential for nurturing a relationship with past guests through remarketing and email marketing campaigns.
2. Use technology to upsell and cross-sell
Your website is the right place for you to offer extra services and amenities to your guests. During the checkout, you can try to upsell a room with a nice view or cross-sell products such as shampoos, beach towels, sunscreens, or anything else that makes sense for your guests to purchase.
QR code technology is revolutionizing the way people consume. Nowadays you can place QR codes on your front desk, inside rooms and common areas in your hotel to make it as easier as possible for your guests to buy or book extras during their stay.
With a QR code in front of your guests, all they need to do is to point their device camera to it and finish the purchase straight from their mobile. Using this method you can offer your hotel products, car rentals, or tickets for tours and activities.
3. Segment your customers
You probably know which type of guest brings your hotel the higher revenue. Let’s say your ideal customer is small families. In this case, you should focus your marketing efforts on this public.
But be careful, segmenting your audience with these tools is not enough to achieve outstanding marketing results. You should also pay special attention to your ads’ graphics and copy.
When creating your campaigns, add visuals and text that ‘talk’ to your target audience. This is very important to create a connection with them. An image showcasing a happy family and a copy that highlights the amenities you offer for this type of customer will certainly help you in attracting small families to book a room with you.
If you don’t have any special amenities for your ideal customer, better work on that. For example, you can offer entertainment for kids or pet-friendly rooms for potential guests that have furry companions. In both cases, you can even charge extra, which directly increases your hotel ADR.
4. Offer packages and promotions
Another way to improve your ADR is to ensure that your hotel is close to maximum capacity most of the time. This sounds challenging, but there are different strategies you can use to reach that based on your destination seasonality.
During the peak season prices skyrocket for all tourism-related services. This is a period when guests are searching for the best deals, which represents an opportunity for you to increase your hotel ADR by offering vacation packages.
The key to creating effective packages is to understand your guests and their needs. Let’s go back to the family example. If small families are your ideal customer, a good idea is to offer vacation packages with discounted tickets to local attractions focused on families.
On the other hand, during the low season you should bet on a discount strategy. For example, offer a discount based on the days of the week when your occupancy rate is low. You can also offer a discount for extended stays. If your guest has flexibility, most likely they will accept paying 50% of the room price to stay an extra night at your destination.
5. Personalise wherever possible
Happy guests are likely to spend more during their stay and can even become recurring customers of your business. And what is the best way to make your guests happy? That’s right, by offering a personalized experience.
Some ideas to provide a memorable stay are:
- Leave a small welcome gift in each room
- Offer free refreshments and complimentary services, such as a spa day
- Empower your staff to provide outstanding service
- Increase the autonomy of your guests by automating your services
- Offer a seamless booking experience and a guest self-service portal
The key to personalization is to deeply understand your guests. The better you know them, the easier will be for you to offer exactly what they want when they need it.
You can start by reviewing your CRM data to check what your ideal customers consume the most. Based on this information you can create unique offers for them.
The hotel ADR is a very important metric every hotelier should calculate. It indicates if your business is doing well or not compared to competitors.
In this article we presented 5 ways for you to increase your hotel ADR, they are:
- Focus on direct bookings
- Use technology to upsell and cross-sell
- Segment your customers
- Offer packages and promotions
- Personalise wherever possible
Investing in the digitalization of your business has a direct impact on your hotel ADR. If you are interested in attracting more customers to your business and increasing your average daily rate, we can assist you with that.
Check out our success stories to learn how ViagemIT has been helping businesses in the hospitality industry boost their revenue and enhance their guests’ experience.