What is ADR?
Average Daily Rate, often shortened to ADR, is one of the most important metrics used in the hotel industry and the vacation rental marketplace. ADR is one of the key performance indicators that informs hosts how much revenue is earned per room over a select time period.
As a factor of total revenue and occupancy rates, ADR tells property managers how profitable a particular accommodation is while allowing them to make side-by-side comparisons with nearby competitors. A high ADR represents a good litmus test in determining how well a property has performed in the past, as well as its outlook for the future.
How to calculate ADR
Calculating ADR is simple: take the total revenue generated, and divide it by the number of nights booked for a controlled period of time.
For example, let’s calculate the seasonal ADR for a three-bedroom beach house in Miami that produces a monthly revenue of $5,000. In this instance, if the property were booked 100% of the time, ADR would be calculated by dividing $5,000 by the total number of days in the month. As shown below, the property would generate an average daily rate hovering around $165.
As most property managers know, an occupancy rate of 100% isn’t always realistic. In fact, an occupancy rate of 70% is generally considered excellent, regardless of the time or location. As occupancy rates naturally fluctuate due to intermittent bookings and maintenance needs, so too does the ADR.
The chart below changes the occupancy rate variable and shows how much the ADR must increase in order to produce the same monthly revenue. As we can see, the fewer nights an accommodation is booked, the more expensive its ADR needs to be.
How to increase ADR (Without Necessarily Charging More)
Increasing a property’s average daily rate is far more involved than simply boosting prices. Without a savvy management strategy that takes all factors into account, hosts risk a drop-off in the number of rooms sold and a decrease in the rooms’ revenue earned. Here are some tips on how to navigate a smart ADR management plan.
Optimize pricing: Seasonality, big-ticket events, and weekly fluctuations should all be taken into account when strategizing an ADR plan. Consider using dynamic pricing strategies that increase and decrease in accordance with peak seasons, weekends, and incoming events.
Keep an eye on competitors: Using unique data from AllTheRooms, hosts can actively monitor — and predict — how competitors tend to target their ADRs. This way, everyone from corporate hotel managers to single-property Airbnb hosts can stay one step ahead of the competition.
Use a property management software: Long gone are the days of manually managing properties across multiple third-party providers. Sign up for a property management software that consolidates your bookings, calendars, and payments in one user-friendly platform. This kind of software will also help advertise bookings across dozens of the internet’s top sites without having to worry about getting overbooked.
Offer incentives: Discounts for extended stays, upcharges on items like bikes, and complimentary gifts like coffee and snacks upon arrival are surefire ways to increase ADRs and keep guests coming back.
Host like a local: In today’s vacation rental marketplace, guests’ tastes are shifting away from the cookie-cutter experiences of hotels to accommodations that are personalized, tailored, and curated by an in-the-know local. Hosts who market their accommodations as local experiences with information on tours, nearby restaurants, laundry services, and other thoughtful tips tend to outperform those who don’t.
Encourage reviews: If the real estate mantra is “location, location, location,” the vacation rental mantra is “reviews, reviews, reviews.” Encouraging guests to leave positive reviews (often by leaving positive reviews of the guests) casts listings in a positive light and allows hosts to charge more.
The Bottom Line
Determining a property’s ADR is essential to creating competitive pricing strategies that maximize revenue. While the raw number is not entirely telling — it doesn’t take into account room cancellations or day-by-day spikes — it’s one of the tools necessary in building a sound vacation rental management strategy. For more information on other important metrics like RevPar (revenue per available room), you can learn more with AllTheRooms Insights.
AllTheRooms Analytics helps property managers understand vacation rental landscapes with quantitative analysis, in-depth reports, and easily-digestible takeaways. Because we aggregate and catalog every room on the planet, our scope and data extend far beyond the competitors. To learn more about how our data can help you make informed decisions about property management, contact us.