Average Daily Rate (ADR): Calculation with Examples

Hotel owners and operators often have a lot on their minds. They must consider beating the competition, attracting as many customers as possible, and generating enough revenue to remain solvent. They should always be on the lookout for tools that can help them in this particular niche. That is why they should know about ADR, which is shorthand for average daily rate.

A hotel’s ADR makes a bigger difference than some owners or operators might realize. That’s why we’ll take some time to talk about it in detail in the following article.  

What is ADR?

A hotel’s ADR, or average daily rate, is a metric that the hospitality industry uses. It means the average revenue that an occupied room earns in a single day.

Why is ADR Important?

If you think about a hotel’s business model and how it operates, it becomes easy to see why this metric matters. Hotels do better when as many of their rooms are filled with the highest ADR possible. 

A hotel room’s average daily rate is one of this industry’s key performance indicators, sometimes abbreviated as KPI. Anyone who has been to business school will recognize this term. Often, businesses will look at their key performance indicators when they’re trying to determine what they can do to make more money and be more successful.

A hotel owner can calculate the facility’s operational performance if they use the ADR. In order to do that, though, they must know the proper formula for calculating it.    

What is the Formula for Calculating ADR?

You can calculate the ADR easily. The way you do it is by taking all the revenue generated for the rooms and dividing that amount by the number of rooms sold. The formula excludes any rooms that your staff occupy or ones that you give away to guests. 

Let us look at an example. We’ll say we’re looking at a large hotel. It has 1,000 total rooms and $100,000 in room revenue. You can get the ADR in this case by using the formula $100,000 divided by 1,000. What you get is $100. This is the hotel’s ADR or the average daily rate.

Now, let’s look at a practical example from real life. We’ll use the popular hotel chain Hampton Inn and Suites. Going back to 2019, we see that the average occupancy level was about 74%.

The average daily rate for Hampton Inn and Suites for 2019 was $121.82. The hotel chain got this number by dividing the total room revenue for each hotel by the number of occupied rooms. Hampton Inn and Suites got the number $121.82 by applying this formula to all of its hotels and rooms. They made this number easily accessible to the public to attract potential investors and boast about their successes in this industry. 

Here is a hotel value calculator that many hotel owners and operators find useful.

What is the Formula for Total ADR?

You may sometimes hear hotel operators making a distinction between ADR and total ADR. Total ADR simply means the ADR of not one hotel but the entire chain. In the case of Hampton Inn and Suites that we just mentioned, $121.82 is the hotel chain’s total ADR. The ADR for individual hotel locations might be a little different.

Does the Formula for Calculating ADR Ever Change?

The formula for calculating ADR is always the same, room revenue divided by the rooms sold. If you want to calculate the ADR of a certain period of time, like a week or a month, you should always follow that formula. 

What Can You Do to Increase Your Hotel’s ADR?

Let’s say you own a small hotel, and you’ve just used the ADR formula for the first time. You now have some crucial information about how your hotel is performing. However, you feel that your hotel’s ADR is not as high as it should be. You have some competitors who seem to be doing better. 

In this situation, it’s vital that you increase your hotel’s ADR. There are all kinds of ways you can do that, but it’s usually best to start with some tried and true ones that have a proven track record.

Examine Your Hotel Chain’s Reputation

Looking at your hotel’s online reputation can go a long way toward getting more guests into your rooms. Your hotel’s reputation and the revenue it brings in are closely linked.

Look at online travel sites like Expedia, Travelocity, etc. You can also check out your hotel’s listing on Google. What is the customer feedback like? Is it positive, or are there some horror stories from people who have stayed there?

Negative online feedback can make more of a difference in how many people stay at your hotel than you might think. Just one or two disgruntled guests who describe their experience at your property can lose you numerous potential customers and thousands of dollars. 

The solution is to reach out to guests who posted negative reviews. Express disappointment that they had a negative experience and suggest solutions to make it up to them.

The other thing you can do is to see whether many of the negative reviews mention some of the same issues. If so, make sure you take steps to address the deficiencies with your hotels. That might mean making sure the pool areas are better cleaned, getting rid of bedbugs or other pests, or automating the checkout process to make it easier. 

Personalization Often Helps Your ADR

Offering guests a personalized experience can help your ADR as well. For example, if you know a guest has frequented your hotel multiple times, you might go the extra mile to make them feel welcome. Giving them free room service or some other perk makes it likely they will remain loyal. 

Promotions and Special Offers

Promotions and special offers are often a hotel’s bread and butter. They have existed for just about as long as hotels and motels have been open. Hotel owners and operators always go back to them because they work so well.

If you know you have a down season in the winter, come up with promotions to get more guests in during those times. You might also offer a free night’s stay for guests who stay at least a couple of nights during the offseason. 

During your busy season, it’s not as likely you’ll need to offer lower rates. It’s the times when attendance is down that you need to get creative with your special offers and discounts. 

Some hotels have a tougher time filling their rooms in the middle of the week. Consider discounting rooms from Monday night through Thursday night accordingly. 

Go for as Many Direct Bookings as Possible

There are always potential hotel guests who like shopping on booking sites not directly affiliated with your hotel. There’s no avoiding that, but you should try to incentivize booking directly through your website.

Travel agencies and non-affiliated websites get a commission, and that’s money that never finds its way into your pockets. Make sure you have set up a PMS, shorthand for a property management system. 

These are crucial in the hospitality industry these days. You can have one that is embedded in your hotel’s website. They should function flawlessly together so that potential customers looking to book can do so quickly and easily.

Your property management system should give prospective guests a chance to book their hotel, request any special accommodations, and make any last-minute changes all in the same place. The more intuitive the system is, the better results you should get from it.  

Target Former Guests

Another thing you should be aware of from a marketing standpoint is that former guests are more likely to book a stay at your hotel than someone who has never been there before. The way you can take advantage of this is by including any former guests in your email marketing campaigns.

When a guest books with you, they should give you their email address. Add that to your email marketing list automatically. Send these former guests a promotional email every month or so. More than that might annoy them, but you also want to remind them how much you value them.

Every few weeks, send former guests an exclusive offer via email, such as 10% off their next stay at your hotel if they book in the next 48 hours. That urgency of the offer might galvanize them into action if they’re on the fence.  

Use Upsells Whenever Possible

You can get more money out of guests with upsells. That’s another time-honored hotel owner tactic that never goes out of style. 

One easy way to use this strategy is to send an email to a guest who has already booked. You might do this 3-5 days from when they’re going to be staying with you. 

Suggest that they upgrade to a fancier room. You can show them professionally taken pictures of the room and the amenities that come with it. See if you can coax them into spending more money that way. 

You can also wait to try and upsell the guest when they arrive. If they’re in vacation mode, they’re likely to be spontaneous and more ready to part with their money.

You can provide some complimentary services to longer-staying guests as well. Consider offering things like time in your hotel’s spa or salon. You could offer guests a massage instead. These pleasant experiences might be enough to convince someone to stay longer than they had originally planned, and it makes it likelier that they will come back soon. 

Think About Allowing Pets

You might also consider allowing guests to bring their pets. You probably don’t want something like a potbellied pig in your hotel, but a well-behaved dog or cat shouldn’t be too much of a problem. Not all hotels allow pets, so being one that does should give you a leg up on the competition. 

Promote Local Events and Tourism Opportunities

Another thing you can do is to promote local events that make the area around your town unique or interesting. You can do the same thing with tourism opportunities, like bus trips or sightseeing tours that stop to pick up guests in front of your hotel.

You can mention these events and tourism activities on your website or when you send out promotional emails. If someone is thinking about staying at your hotel for pleasure, they’re more likely to do it if they know there are some fun attractions or events nearby.

Make Your Hotel More Tech-Friendly

Your hotel should always have the most modern amenities. If a nearby hotel has them, but yours does not, the other hotel looks more chic and trendy by comparison. 

Making your hotel more tech-friendly is going to attract a certain type of visitor. These are the individuals with the latest smartphone models, laptops, and other high-tech gear.

Think about installing automated check in and check out stations in your lobby. If a guest is in a hurry to drop off their bags or get to the airport, they will appreciate this. Any other automated amenities you can install should get some positive feedback from your guests as well. 

However, even if you do go with automated services, make sure there are still employees around to assist your guests if they need help. Not every guest will want to interact with the new technology, and you don’t want to risk alienating them.  

These are some of the better ways of improving your hotel’s ADR. If you find that yours is not where it should be, you need to take steps to improve it without delay. 

You can use some of the more proven methods we mentioned here, or you can get more creative with your tactics. Whatever you can do to raise your ADR, within reason, is worth attempting. Your hotel’s success may very well depend on it. 

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