Hotel ADR: A Hoteliers' Guide to Average Daily Rate

Must Read: Guide to seasonal pricing of hotels

What is ADR (Average daily rate)?

ADR (Average Daily Rate) represents how much revenue hotels make for rooms occupied on a specific day. It's an important metric for hoteliers as they can evaluate the financial performance of their property with it.

Hoteliers can increase their ADR by upselling or fine-tuning their pricing strategy. The ADR for hotels is calculated by dividing the total room revenue earned by the number of hotel rooms sold.

A higher ADR indicates that hotels set higher room rates, which results in more revenue.

From the guest's perspective, higher rates often signify that hotels provide valuable experiences to their guests. In return, they charge higher prices for these experiences.

ADR varies from hotel to hotel. Luxury hotels generally have the highest ADR compared to basic accommodations. The rate varies depending on the hotel class.

ADR can be higher for hotels located in busy areas or those near attractive locations.

In a nutshell, the average daily rate is a good indicator of:

• How well your hotel is performing.
• How effective your pricing strategies are.
• How much revenue is your hotel making from selling rooms.

How to calculate ADR?

You can calculate ADR for hotels by using the above-mentioned formula - 

ADR = Total room revenue/ Total rooms sold over a period

For Instance – If the hotel room revenue is $3600 per day and the hotel has 20 rooms, then the ADR would be $180. 

Must Check: Hospitality Industry Statistics

Difference between ADR and RevPAR

Although terms like ADR and RevPAR are used interchangeably, these are quite different. 

RevPAR means how quickly you can fill the available rooms at an average price. It is a financial metric that represents how much revenue a hotelier makes from both sold and unsold rooms. An increasing RevPAR signifies that metrics such as occupancy rate and average room price are on the rise.

Hoteliers calculate this metric to evaluate the revenue performance and then adjust their revenue strategies accordingly.

It's essentially an important figure to track because if RevPAR goes down, your hotel isn’t profitable. To increase RevPAR, you either have to drive more occupancy or increase your room rates.

Below is the method to calculate RevPAR for your hotel- 

RevPAR = Total room revenue/Total available rooms  

Or 

RevPAR = Average daily rate (ADR) * occupancy rate

While ADR focuses on the average revenue your hotel makes from each room sold. But ADR changes over time based on room type, days of the week (weekends or popular holidays), seasonality, and market trends.

Although ADR will not provide a complete picture of your hospitality business, it provides a picture of how your hotel is performing. 

What are the top strategies to improve the hotel's average daily rate?

Here are some tried and tested strategies through which hotels can improve their average daily rate. Let's discuss them in detail one by one. 

1. Adopt a dynamic pricing strategy

One of the guaranteed ways of increasing the hotel’s ADR is to use a dynamic pricing strategy. Dynamic pricing strategy means adjusting hotel room rates considering various factors such as market demand, seasonality, current trends, or competitor rates.

Hoteliers can take a first-mover advantage in this and achieve a competitive edge by increasing their hotel prices during the peak season or when the demand is high. Higher room prices equate to higher hotel revenue and hence more ADR. 

Room prices might not be the same for all days, so hoteliers need to see what factors affect the changes in room rates. Is it competitor pricing, market trends or demand for hotel rooms?

Additionally, you can target price-conscious guests by running discounted offers or offering them last-minute deals or complimentary EXTRAS. This way, you can make your property stand out.

2. Take inspiration from your competitors

In this competitive hotel landscape, you may go unnoticed anytime in the sea of hotels. That’s why you need to watch your competitors, identify their strengths and weaknesses, and keep a note of their pricing strategies. 

This gives you an idea of how much you can raise the bar so you can get more money on the table.

If you see that Hotel A has a higher ADR because it charges higher prices from its guests, it doesn’t mean you would blindly copy its pricing strategy.

There are other factors as well that affect the average daily rate such as guest experiences, amenities, location, star ratings, etc. 

Remember! Luxury hospitality begins with stellar service, how well your staff greets your guests, and what unique things you do to makeyour property stand out.

Mckinsey conducted a survey in which it interviewed General managers of hotels and the findings of the report state that people love spending more money on experiences, not tangibles. They even said that the facilities that hotels provide are a stage, and guests love to pay for its performance. 

In a nutshell, you can fine-tune your pricing structure by keeping a close eye on competitors and adjusting your revenue strategy accordingly.

3. Upsells and cross-sells

Another way to increase your hotel’s ADR is by doing more upselling and cross-selling. Upselling is when you recommend a guest with a room upgrade facility. Earlier, guests booked a regular room, and your staff offered a room with a premium and cozy setup.  

Upgradation of room brings higher revenue for hotels. 

While Cross-selling is about offering guests a complimentary service, say a spa appointment or a dining experience.  

When hoteliers offer such unique experiences, guests won’t care about spending extra bucks on upsells or cross-sells. An increased revenue results in higher ADR.

4. Focus on building your online reputation

A good reputation in the market and aninsane number of guest reviews make your hotel an attractive paradise.

A positive hotel’s reputation has a direct relationship with more bookings and increased hotel revenue. And research backs this up.

More importantly, satisfied guests spread positive word of mouth about your hotel, building your brand image. Hence, it affects your ADR score as well.

5. Get more direct bookings

Every hotelier wants to get a hike in ADR, and that can be possible by having an SEO-friendly site. An optimized website has a high tendency to rank on SERP. Because your website ranks at the top, it gets direct bookings from local and international travelers. 

Those increased bookings bring more revenue to your hotel business, which increases your ADR.

6. Lure guests through lucrative discounts

You can offer enticing discounts for guests who extend their stay. Perhaps, many of your guests are on the mission to explore things or visit popular destinations. So, they want to increase their stay length. 

That’s where you can surprise your guests by offering lucrative discounts on their extended stay. This increases your average daily rate (ADR) and guests on the other hand might prefer extending their stay length because of exclusive discount offers.

How can BOTSHOT help to Increase ADR?

At BOTSHOT, we help hotels of all sizes through our all-in-one AI-powered PMS. Our SaaS-based digital solution increases your hotel revenue by facilitating contactless check-in/check-out, streamlines your housekeeping processes, and manages your outlet reservations in one go.

We don’t want you to get stuck with manual yet time-consuming processes, so we provide an AI-powered platform to automate your hotel operations within just 3 minutes. 

Wrapping up

Most hoteliers ignore this metric (ADR) however it’s a critical index through which hoteliers can measure the performance of their property. They can compare where they stand against their competitors.

The above guide gives you insights into why hotel ADR is a powerful weapon for you and how you can increase it by adopting various strategies.

Undoubtedly, you understand that you can increase ADR not just by raising prices, but rather by providing valuable experiences to guests.