The previous methods of ADR (Average Daily Rate) calculations are not good enough any longer. In the fast-paced world of the hotel industry the ecosystem of distribution channels and methods is evolving fairly rapidly and we need to reflect that in our ADR calculations. We need to separately calculate an external ADR from guest-paid room rates and an internal ADR from hotel-collected net room rates in order to come to terms with some fundamental measurement challenges.
Hotels compete hard and their performance for cost efficient sales and room rate maximization is under the microscope. Today as a result of successfully digitizing all points of interaction with customers, we can accurately measure relatable costs: there is a data trail everywhere that can be analyzed. The new term “guest acquisition cost” that has to be factored in now, was not even a widely used term a decade ago.
As a conversation starter: is ADR the ultimate measure? Well, maybe there is more in room rate metrics than what meets the eye. Imagine if someone proposed that getting the right footwear is the only key to success for marathoners. This proposal, substantiated with a detailed discussion into the particulars of the different makes and models plus how to select the proper shoe may even get accepted by many as all-important. There is no doubt: getting the right running shoe is pretty important for long distance runners. However, it is obvious that success for marathon runners requires a lot more than just picking the right pair of running shoes. There is so much more a runner needs to do in order to becoming a contender.
How does the above relate to Room Rate Metrics for hotels? Well, one can get baffled with the too narrow approach of some revenue professionals just as well, who tend to think about the exclusive significance of ADR in a similar manner like the running shoe advocates. Can it be seriously proposed that hotel profitability would be maximized if only the room rate, the most important variable could be optimized to perfection? However important room rates can be there is so much more for revenue professionals to work with in addition to ADR.
Consider the concept of Total Hotel Revenue Management to start with. Revenue generated through revenue streams other than rooms could also improve a hotel’s revenue performance. And it’s not just gambling revenue that comes to mind. We may even discount room rates on occasion if function space, catering, spa or food and beverage revenues provide sufficient contribution margins to compensate for the compressed margin on rooms. Some bundles are developed like that since the early years of the business. ADR management matters a lot, but there is good money to be made outside the room division as well.
