ADR: an essential performance indicator for your hotel

As we’ve seen in previous articles, the financial health of your establishment goes hand in hand with a precise analysis of your key performance indicators. One example is GOPPAR, which gives a detailed view of your revenue and costs in order to determine the level of profitability of your operations. If you’re wishing to focus on accommodation, though, ADR (Average Daily Rate) is a key component within your pricing strategy. We’ll take a look at the method of calculating this indicator, which takes into account your occupancy rate and the different channels you use to sell your rooms, and also the steps you can take to optimise it.

How do you calculate your ADR ?

To work out your hotel’s ADR, you need to divide the revenue generated from room rental by the number of rooms sold. This means you don’t include any rooms which you let out for free in exceptional circumstances when making your calculation. Do however include all the rooms sold, irrespective of where the reservations come from (direct reservations made via your website or by telephone, OTAs…). Of course, this figure can vary depending on the occupancy rate or the allotment you have negotiated with other service providers (travel agencies, OTAs…).

How do you optimise your ADR?

Ah, the million dollar question! Your establishment is overflowing with opportunities to increase your ADR: with just a little bit of creativity, you’ll see your ADR increase. The first thing to do is increase your direct reservations, and this is something you should work on on a continual basis. It means you will avoid paying out commission, which impacts the revenue you generate from your accommodation. To get more direct reservations, there are a number of things you can do to boost your sales strategy. Here are a few ideas:

– Offer preferential rates or discounts for longer stays, for instance if a client reserves an extra night.
– Segment your offer by targeting your clients based on their characteristics. If you offer packages aimed at “business” clients, you can guarantee a substantial rate for the room, whilst offering certain benefits, such as free breakfast or dinner. Following the same model, “leisure” clients are likely to be tempted by the attractions in your area, so you could offer tickets for museums, leisure parks, or even a guided tour of the city. If you choose to do this, don’t hesitate to set up partnerships with other players in your sector.
– Know your clientele. As the previous point suggested, it’s important and useful to consider the different characteristics of your clients. This enables you to design a client experience which will satisfy your guests on all levels and will ultimately help you to better meet their expectations and requirements. In consequence, they will be likely to spend a little more than they would otherwise.
– Analyse the competition. If you want to fill your rooms at the right price and at the right time, it’s vital that you find out the rates charged by the hotels near you. It goes back to the basic principles of revenue management. This approach must also be applied to the rooms you offer through OTAs.
– Retain your client base. It might seem insignificant, but building a relationship of trust and attracting clients back regularly can also have a significant impact on your ADR. But once you’ve achieved that, don’t stop there! Take advantage of your satisfied guests by asking them to recommend you. This will guarantee an increase in occupancy rate thanks to recurring reservations, but will also attract more clients to your hotel as a result of your brand image, especially that established on review platforms.

These measures can be implemented in your establishment and will give fairly rapid results. Let’s now focus on the last of these points; that is your online reputation. This subject lies at the very heart of the debate when looking to understand the factors which have an impact on your ADR and the other performance indicators.

How does your online reputation affect your ADR?

Nowadays, managing your online reputation in an effective way can help you in various ways. Of course, the main reason behind this is to attract new clients, because travellers are increasingly reliant on information and reviews on platforms like TripAdvisor and Google when it comes to deciding whether to make a reservation at a hotel. Having a good and well-managed online reputation can have an impact on your occupancy rate, leading to a significant increase in reservations.

To go further, we can cite this study conducted by the renowned Cornell University, which stipulates that if a hotel improves its score by one mark on a scale from 1 to 5, for instance going from 3.5 to 4.5, it can increase its prices by 11.2% and will still retain the same occupancy rate, as well as maintaining its position on the market. It’s therefore clear that, by ensuring you analyse your client reviews and by inviting satisfied clients to leave a review after their stay, you’re giving yourself the best chance of increasing your ADR.
At some point, most people will have paid slightly more to receive a benefit or a service which they knew would be of a particular standard.

Finally, regarding the purely analytical aspect, client reviews are a rich source of precious information which will help you to correct your weak points and showcase your competitive advantages. If a trend emerges, put measures in place to resolve it. For example, if you notice that a large number of reviews posted across various platforms criticise (in an honest and fair way) the quality of your linen, you should think about investing in this in order to remain worthy of your standing. Otherwise, you may see a decrease in your reservations and, consequently, your ADR.
However, if lots of reviews emphasise the quality of your services, as mentioned earlier, capitalise on this and consider raising your sales price. You will however need to take the time to analyse other factors, like your competition.

To conclude…

Listen to your clients at every point during their stay. That way, you’ll get to know them better and it will be easier to implement the measures mentioned in this article, in order to increase your ADR. An appropriate pricing strategy, especially regarding OTAs, coupled with effective management of your online reputation, will give you all the keys to help make your business more profitable.

Want to know more about how to take advantage of your client reviews? At Customer Alliance, we help hoteliers to gain more insight into their online reputation and manage it effectively.
Contact us now for a free presentation.