|True ADR: The Next Generation of Revenue Management Metrics.|
By Jean Francois Mourier, CEO of REVPAR GURU
Monday, 18th February 2013
Revenue management was created in the mid-1980s based on the practice of yield management in the airline industry.
For as long as revenue management has existed, so has the debate over which revenue management metric is most effective to determine the success (or failure) of a property's pricing strategy.
Each revenue manager has their own personal preference, but in general, today most hoteliers use occupancy and ADR as the key metrics for evaluating their progress.
At REVPAR GURU, we donıt believe that occupancy and ADR alone are sufficient to actually determine whether a pricing strategy is effective. As is, neither of these metrics truly evaluate how much money will be deposited to your propertyıs bank account but thatıs another story, for another article. For today, I want to discuss ADR specifically.
As you know, ADR (average daily rate) is calculated by dividing the total room revenue by the number of rooms sold. Thatıs where the problem lies. If you are only calculating ADR based on the rooms that are sold, then you are not getting a real indication of your average daily rate. So Iıd like to propose that hoteliers start using True ADR or T-ADR, which will provide a much more accurate metric for evaluating revenue management activities.
True ADR is calculated by dividing the total room revenue by the total number of rooms, not the total number of occupied rooms. Why is this beneficial? ADR is not sufficient because it doesnıt take into consideration whether 10% or 70% of the rooms remain unoccupied. Two hotels may have the same ADR, but if one is mostly empty, they arenıt earning as much revenue as the other property.
T-ADR addresses this problem by offering a consistent baseline metric to evaluate a propertyıs performance against the competition and industry standards. The total number of rooms of any given hotel is a static number; therefore, T-ADR is a non-ambiguous number that actually demonstrates how much money can be deposited into a propertyıs bank account at the end of the day.
Will your property be adopting True ADR to evaluate the effectiveness of your pricing strategies? Let us know your thoughts by emailing us at email@example.com or calling us at +1.786.478.3500.
About REVPAR GURU
REVPAR GURU helps hotels to analyze complex data - including historical rates, the rates of competing properties in the same destination, pricing trends and environmental factors - to determine the right rate, at the right time, to secure the highest number of bookings. REVPAR GURU's system calculates room rates up to a year in advance, and continues to update the rates automatically multiple times every day as factors change, across all online channels including OTAs and direct channels. In short, REVPAR GURU helps hotels to increase their occupancy and their revenues.
Headquartered in Miami, Florida, additional information can be found at www.revparguru.com or by calling +1.786.478.3500.