Average Daily Rate or ADR in the hospitality industry is a term that is quite popular among hoteliers worldwide. It plays a great role in defining an increase in a hotel’s revenue.
Briefly, it is a metric to indicate the average realized room rental per day. And, working on ADR helps you devise a revenue generation blueprint that systematically gives your hotel business a hike in profit.
Going through this, you’ll get an overview as to where you need to put efforts to realize your goal.
To get a clear idea, I’ve mentioned few instances that aren’t included in ADR:
- Vacant rooms or complimentary rooms
- Rooms occupied by hotel staff or the owner himself
- ‘No shows,’ and forfeited deposit rooms
- Canceled bookings and charges levied for the same
Excluding the above options, only rooms rented out to guests are calculated for deriving a hotel’s ADR. It can also be calculated on a monthly, quarterly and yearly basis, depending upon your requirement and plan.
What is ADR in a hotel?
ADR is commonly referred to as the Average Daily Rate in the hotel. It is a key performance indicator that is used to calculate the average price or rate for each hotel room sold for a particular day.
It is the most popular and common financial index that helps hotels measure their performance and success against their competitors.
How is a hotel’s Average Daily Rate calculated?
The below table mentions hotel data and rooms revenue:
| Room(s) Type | Rate | Available | Sold | Total revenue |
|---|---|---|---|---|
| Standard Room | $60 | 10 | 8 | $480 |
| Deluxe Chamber | $90 | 10 | 6 | $540 |
| Double Bed Suite | $120 | 5 | 3 | $360 |
| Total/Amount | 25 | 17 | $1,380 |
So, as per the Average Daily Rate formula:
Average Daily Rate = Rooms Revenue/ Number of Rooms sold
Here, your ADR will be:
ADR: $1,380/17 = $81.17.
Now as you are aware of the term ADR, you ask:
Why should you work on increasing your hotel ADR?
The answer is high operational cost, inventory maintenance and other expenses to manage a hotel is at peak.
Thereby, to run your hotel successfully and to recover the cost incurred, your business has to have an increase in revenue gradually and a hike in hotel ADR.
So, when you keep track of your ADR, consequently the return on investment on your hotel business rises year-on-year, finally boosting the profit ratio.
Before discussing the tips to increase the average daily rate of a hotel, I would like to brief you with a scenario.
You may be applying multiple rate updates in a day as per the occupancy levels for a hike in hotel revenue, but at one point of time, multiple rate updates don’t help much in increasing the ADR.
Just as the elasticity of supply and demand affects the rates of any product or services, similar is the case of changing tariff rates as per the occupancy percentage at your hotel.
Hence, to enhance your ADR, you also need to focus on increasing the revenue brought in by each guest.
Strategies to increase your hotel ADR:
Keep watch on competitors
Set optimum pricing
Promote local tourism and events
Offer packages and promotions
Prioritize your distribution channel
Attract more direct bookings
Personalize services with guest self-service portal
Provide complimentary services to guests
Offer discounts on extended stay
Upsell your services
Let us explore them in detail.
1. Keep watch on competitors
It is difficult to analyze your competitors manually. On top of that, it also consumes a lot of time and chances of errors are more.
“Your competitors are on a hunting spree. Either you become a hunter or be a prey to their strategies.”
In today’s era, you can easily keep track of your competitors’ room pricing with the help of a competitor rate analysis tool.
This tool provides you complete information about how your competitors have set prices for each of their room. Accordingly, you can set up your room rates based on the market trends.
Below video shows how to check competitors rate using hotel rate shopper tool by eZee.
This way, setting up a competitive price and improve your hotel room’s average daily rate.
2. Set optimum pricing
Pricing is considered as one of the most important factors in hotel management. Each guest has different expectations when they come to book a hotel room. Hence, it is important to analyze the current market, customer demand, each guest’s capacity to pay the price, and more.
By doing the proper segmentation of your target audience, you would be able to set a pricing strategy effectively.
It’ll help you adopt a different approach for each segment to increase your ADR. You can also consider yield management to set your rates depending on your occupancy level during seasons, weekends or festivals.
3. Promote local tourism and events
Events, festivals, and celebrations happen around the world. Many festivities are often sponsored by the government or corporate bodies. These events play a vital role in catering your guests with a momentous experience.
This way you can book their tickets and inform them prior to the events that are happening in your nearby areas or venues. Your guests are ready to pay extra bucks for entertainment, and this is what adds to your hotel ADR.
4. Offer packages and promotions
Guests are often in search of the best deal when they book a hotel room. Therefore, as a hotelier, you need to identify the ups and downs of your specific market and customize your offers accordingly.
During peak season, you can get more bookings by offering high-value promotions with no rate discounts. Similarly, at the time of a low season, you can provide weekend special, length of stay discounts, and so on.
5. Prioritize your distribution channel
Most of the hotels prefer to list their brand on different OTAs to get more bookings. However, many hotels end up giving high commissions to some of the OTAs without receiving a good amount of bookings.
Therefore, it is important to analyze – which OTAs are getting you maximum bookings. Observe and understand all the OTA channels, look at the number of bookings you get, and the overall value that they contribute to your property so that you can make strategies accordingly.
OTAs are a great channel for creating brand awareness and drive higher ADR. You can have more OTA connections for your hotel as a part of your distribution mix; rather than relying on a limited number of channels.
6. Attract more direct bookings
Hoteliers like you are keen to get ample number of direct bookings. For a high flow of direct bookings, you must have a hotel website [integrated with booking engine] that is high in rankings, having a good SEO and listed on various meta-search engines. The point here is that when your hotel website has an excellent SEO it attracts more bookings from local as well as the global visitors.
Additionally, if you decide to spend few bucks, then Google Hotel Ads is the best option for you. Your revenue rises with an increased profit ratio and hotel ADR.
7. Personalize services with guest self-service portal
Whether you consider or not, a guest self-service portal is trending with more guests using this option. With a higher penetration of smartphones, guests are demanding more services that are handy, time saving and tech-savvy.
A guest portal allows your guest to create the profile, fill in personal information, opt for pickup-drop off services, apply booking modifications and more.
This way, it’ll help you serve your guests and improve hotel ADR by pitching additional services at every stage of interaction, i.e. pre-arrival, at arrival, during the stay and post-stay.
8. Provide complimentary services to guests
Creating the ultimate experience for your guest includes giving out complimentary services. For example; offer them free services like spa, salon, massage; once a year or at the time of festivals.
Complimentary service is a great way to increase the average daily rate by inducing guest interest. Especially, the ones who are gaining your services for a long time or may visit you and stay at your hotel just to chill out with family during the festivals.
9. Offer discounts on extended stay
Your guest has booked with you for 3 nights, on the 3rd night he requests to extend the stay. What do you do? Here you need to understand that many of your guests or travelers are on an exploring mission.
This requires them to stay for long so that they get to know all the interesting places, history and commercial importance of the city or tourist place.
To win your guest’s heart, you can offer them an extended stay discount that could come as a surprise to them. This waiver will certainly boost your hotel ADR and increase the occupancy rate too.
10. Upsell your services
Upsell is one of the best ways to drive higher ADR. You can send pre-arrival emails to your guests and ask them if they would like to upgrade their rooms.
Add the option in your pre-arrival campaigns and even in the booking confirmation email to book amenities such as early check-in, late check-out, daily breakfast, and more to drive ancillary revenue.
Once your guest checks-in, offer extra amenities with the welcome email or last-minute offers such as the dining package. It helps you generate incremental revenue and enhance the guest experience at the same time.
Remarkably, when you’ve finally decided to improve the average daily rate, you ought to have the following automation in priority:
- An integrated hotel PMS that keeps you updated on the operations and streamlines your hotel business.
- An attractive booking engine which enables your website visitors to book directly from your website.
- An intuitive hotel CRS system which plays a major role for your hotel chains to manage inventory, attract direct bookings, run promotions and more.
- Monitor your hotel performance through Data Analysis Tool – Innalytics and take informed hotel business decisions.
- Online review management system to maintain your hotel reputation and online rankings.
Have your requirements answered from the above checklist. Once you have executed it, you’ll definitely get higher bookings, spurring your hotel ADR and occupancy too.
