If you work in the accommodation industry you may be familiar with the term average room rate or average daily rate (ADR). As many sectors of the travel industry see increased competition, paying closer attention to your data becomes even more important. Understanding which metrics are the most important and managing your revenue strategies effectively can give you a real competitive advantage. Alongside RevPAR and Occupancy Rate, average room rate is one of the key performance indicators that can help you optimise the profitability of your accommodation business and win vital market share. So what is ‘average room rate’ and how do you use it to your advantage?
Average room rate refers to the average price paid for rooms sold or, put differently average income per occupied room in a particular time frame. This rate is calculated by dividing the total room revenue by the number of rooms sold over a given period of time, such as a day, week, or month.
ARR = total room revenue / total rooms sold
So if your total room revenue is $4000 a day and you sold 20 rooms, the average room rate is $200 .
You can also calculate this rate for specific room types in your property.
An important point to note is that ADR differs from RevPAR in that it only reflects occupied or ‘revenue-generating’ rooms. RevPAR takes into account all the rooms that are available, not just sold rooms.
The average room rate is an important metric for the accommodation industry because it helps hoteliers and other accommodation providers to determine the pricing strategies that will maximize their revenue. By analyzing the average room rate, hoteliers can identify trends and patterns in guest behavior and adjust their pricing strategies accordingly.
Used in combination with RevPAR (revenue per available room) and occupancy rate it is one of the most powerful and useful pieces of data at your disposal. It enables you to make a comparison between current and previous periods and benchmark your performance against your competitors.
Understanding your ADR enables you to identify opportunities to adjust your rates and win market share.
For example, if the average room rate is increasing, it may indicate that there is higher demand for rooms, allowing you to increase their rates accordingly. On the other hand, if the ADR is decreasing, it may indicate that there is low demand for rooms and accommodation providers may need to adjust their pricing strategies to remain competitive.
Obviously many factors can affect your ADR including seasonal demand patterns, room type, market profile and day of week. So it will fluctuate throughout the year. However, it is a key benchmarking metric because of the direct relationship it has with demand for rooms, the channels used for distributing rooms, guest profile and room types and room promotions.
To achieve optimal ADR, simply increasing room prices isn’t the best or only option. Finding the balance between both ADR and RevPAR will help you to achieve maximum profitability. Ask yourself: what is the optimal occupancy and average room rate to grow my RevPAR.
There are a number of strategies that you could adopt to increase average room rate once you understand your metrics. Some factors that could influence this include:
So whatever your property type, whether you are a hotel, motel or resort, measuring and monitoring your business data analytics is not only great business practice but it will allow you to maximise your profit and remain competitive.
Your business intelligence data is invaluable when it comes to analysing and improving your performance. It provides invaluable insights to help you make informed, effective and efficient business decisions and in turn help you to maximise your profitability.
Talk to the team at HiRUM about how we can help you access the most important hotel data analytics for your property.
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