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What is ADR?

Average Daily Rate, often shortened to ADR, is an important metric used to measure the performance of a rental property. Combined with RevPAR (revenue per available room), ADR helps property owners maximize profits and determine their rental’s value compared to competitors and the local market.

 

Steps to calculate ADR

To calculate ADR we start off by taking the total revenue generated by a property and dividing it by the number of nights booked during a time period. When counting the number of nights in a time period, only include nights where the listing was either available or booked, do not include nights the property could not have been booked. Also, include all revenue generated, or what the guest paid for the room-night. This includes fees and taxes.

For example, a host may ask what the ADR is for a property they have only available in the summer. In this instance, a three-bedroom beach house in Miami can only be booked for the three months of June, July, and August, and costs $15,000 for the summer. To calculate the ADR, divide the revenue ($15,000) by the total number of nights the house is booked (91), as shown below. The ADR of the rental is $165 over the available timeframe.

 

Figure 1.0

 

Let’s say that you didn’t book out the home for the entire summer, and rather, left it to weekly bookings. If the total number of nights booked decreased, assuming you leave time for cleaning, grounds keeping, and small gaps between guests, then the only way to earn the same keep for the summer is to raise the weekly rate, thereby increasing your ADR. The table below displays this relationship.

 

Figure 2.0

 

Improving a property’s ADR is an important factor when trying to increase revenue and can be accomplished using various methods. But remember, if occupancy suffers, the net result is the same, as showcased above.

 

Tips on how to increase your ADR

As defined above, ADR is calculated by dividing revenue by the number of nights booked, so there is really only one way to improve ADR, and that is to earn more revenue from room-nights booked. In other words, charge more. The best way to earn more is to highlight the value of the property, and chances are your occupancy will improve too–a win-win!

Rethinking the management strategy of a property can be the key to attracting new customers while retaining past clients. Offering incentives is an approach used to persuade guests to stay longer or plan return stays. For example, reward programs are a great way to encourage return bookings and increase customer loyalty at the same time. Some properties offer discounts to guests who book over a certain number of nights, while other upgrades or additional perks may be offered for even longer stays. These reward systems establish longer-term guest satisfaction which in turn improves a property’s ability to generate revenue and more and also increases occupancy.

 

For vacation rentals, ADR can be impacted by encouraging customers to leave reviews about their stay to promote the property. Upgrades and amenities should also be offered for vacation rentals, such as local tours, catering, and laundry services. Rentals with higher ratings tend to perform better.

 

The Bottom Line

ADR does not take into consideration room cancellations, spikes in room booking due to events, and is a broad estimate of how well the property is performing. It is one of many key performance indicators and should not be the only factor in evaluating a property or market. Determining the ADR of a property is essential to creating competitive pricing strategies to maximize revenue.

AllTheRooms Analytics helps property owners and managers understand the market in their area, and through our analysis and reporting, increase return on investment (ROI). To see trends in the vacation rental market, projections for future markets, or the effect of events on bookings, drop us a line to request a report on any region globally.

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