How Can You Forecast & Increase ADR?

A hotel must monitor its metrics for an efficient revenue management, thereby increasing ADR or RevPar or Occupancy. To be precise, revenue management measures a hotel’s ADR performance relative to a combined grouping of hotels which comprises of a competitive set, market, as well as a sub market.

What is ADR?

It is an index and when it is 100, there is reasonable share compared to the combined group of hotels. When ADR index surpasses 100, it comprises something beyond a fair share of the group’s ADR performance. Contrariwise, an ADR index beneath 100 represents less than a fair share of the total ADR performance.

How to build ADR for existing hotels?

It can be built exclusively through revenue management and planned forecasting. While an assumption can drive both variances and forecast, a hotel’s ADR might impact the final profit-and-loss budget. As a result, one has to minimize budget alterations irrespective of site or currency. Some methods to make forecasts are as follows:

• Data pertaining to average daily rate can be collected on a daily, weekly or monthly basis.

• Reports published by prominent research firms like STR can be used in favor of the hotel’s interests. In terms of hotel revenue management, these reports have nearly accurate occupancy, RevPAR and ADR figures with respect to competitors.

Besides, comparing and learning all about the set statistics is crucial for revealing average differences in ADR. Some chief focus areas can be quality, services, pricing or distribution strategies across locations, for branding and clients. Besides, hotel average daily rate trends should ideally mirror in the market.

• The macroeconomics: Wider market influences need to be analyzed in order to fish out supply and demand projections. Some hotel feasibility studies and customer reviews about projects provide an insight into official inflation forecasts and tourism drivers in the area.

Projecting an average daily rate for planned hotels requires the aforementioned approach. It is evident that the process relies heavily on primary competitive set data sources. So, after all the said studies are complete, and there is a data inventory pertaining to growth rate percentages, monthly breakdown can be applied. This can be used to project both monthly and annual figures.

How to make an ADR forecast for a planned hotel?

The ways to go about increasing ADR/RevPAR have been described as follows:

• Firstly, study the competitors having a similar business in terms of room count, clientele, service quality and target market. Their average daily rate forecasts can be tweaked to come up with conservative figures.

• Secondly, weigh market segment averages by analyzing prospective competitor rate segments. In order to do so, high quality segment data is required.

• Thirdly, increase ADR by doing a bottom up analysis that involves the measurement of operating costs as well as pricing required for profitability.

Thus, for the anticipation of a hotel’s future performance in terms of demand, key metrics namely occupancy, ADR (average daily rate), and RevPAR (revenue per available room) should be analyzed. These figures not only aid in efficient planning, but also empower the decision making process across departments, which ultimately aid in revenue growth.