July 26, 2023

RevPAR VS. ADR: The Top Hotel KPIs You Should Be Tracking

Posted By: Admin

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To stay competitive and profitable in the hospitality industry, you need business intelligence tools (BI) to collect, store, and monitor your data. However, having access to data isn’t enough. You should also track and analyze the right key performance indicators (KPIs) so you can better align with your business growth strategy. 

Which KPIs matter? 

We’ll discuss how to use the average daily rate (ADR) and revenue per available room (RevPAR) so you can make data-backed decisions to grow your business.

 

Use ADR for Hotel Revenue Optimization

 

Optimizing your hospitality business strategy starts with knowing which KPIs are involved with revenue management. ADR is an important indication of how your business is performing on a foundational financial level.

 

What Is ADR in Hospitality?

The average daily rate is a KPI that isolates the average price that your rooms are being booked at per day. It is calculated by dividing the total room revenue generated by the number of rooms sold:

ADR = room revenue/ rooms sold 

While ADR is closely intertwined with RevPAR, you can still take advantage of monitoring the ADR individually. This KPI gives you insight into which rates to expect on a given day of the week, a specified month, or even an entire season. You can identify patterns and make adjustments for better set rate structures to maximize profits. It can also be used to evaluate your progress toward revenue goals, identify marketing effort needs, and compare your room rates to your competitors so you can adjust your revenue strategy accordingly.

 

Your Hotel’s Average Daily Rate and Dynamic Pricing

If you know your hotel’s ADR is below what’s needed to meet your revenue goals, you can do something about it. Dynamic pricing — one of the most useful hotel management software features — can be used to automatically increase your rates based on demand across all channels in real time. 

In contrast, if your ADR is above that of your competitors’ and your occupancy rate is low, this is a good indication that you may need to use dynamic pricing to lower your rates to increase occupancy. Keep in mind, there may be other underlying factors that will influence the success of your pricing adjustments. 

 

The RevPAR Formula and Why It’s a Favorite

 

While the average daily rate is a key hotel metric for tracking profitability, revenue per available room (RevPAR) can give you insight into your hotel’s performance. This KPI is calculated through multiplying the ADR by the occupancy rate of your hotel: 

RevPAR = Average Daily Rate X Occupancy Rate

In essence, while ADR offers insight into how efficient a hotel is at maximizing room rates, RevPAR indicates how efficiently a hotel is able to fill its available rooms at the target rate. This KPI is extremely useful for comparing your statistics over time to see if there is a pattern for different seasons, marketing efforts, and promotional periods.

The RevPAR formula gives a more accurate picture than ADR because it takes into consideration both daily rates and daily occupancy. Typically, if this KPI has increased that means your occupancy rate has improved. With such good news, it’s little wonder that RevPAR is a popular KPI found on many business reports given to key stakeholders. 

 

Surprise! It’s Not All About RevPAR

While this KPI is an important indicator of a hotel’s success, it’s not the only KPI needed to gain an accurate full picture. Even though your RevPAR may have increased, that doesn’t mean you are experiencing an increase in profits. A hotel’s size and different room types can impact the true nature of your business’s revenue. 

If your higher-priced suites and rooms are always booked but your lower-priced accommodations are not, this could impact the usefulness of your RevPAR KPI. You may need to evaluate other KPIs, such as occupancy rate and average length of stay (ALOS), in tandem to account for any irregularities in individual metrics. Additionally, RevPAR does not take into account the other sources of revenue at your hotel, but a reporting tool can help you do just that.

 

Make the Most of Business Intelligence Reports

 

The reporting feature of innovative hotel management software allows you to pull data and create custom reports to track every KPI your business needs. You can automate reporting to monitor KPIs on a routine basis so you can adjust your pricing as needed to maximize room occupancy.

Business intelligence (BI) reports allow you to:

  • Evaluate marketing efforts based on selected KPIs
  • Share comprehensive data with key stakeholders
  • Track your competitors with the right integrations
  • Organize data and keep it accessible for easier monitoring

With both automated and custom reporting at your fingertips, you can improve your system processes and work towards meeting your business growth objectives.

 

Business Intelligence Reports and More with Sophisticated All-in-One Software

 

Tracking RevPAR, ADR, and other KPIs is more efficient when you can do it all from one place. Sophisticated software lets you store, pull, manage, and analyze hotel and guest data with less effort for more accurate results. 

Download your Ultimate Guide to All-in-One Hotel Management Software to find out more ways the right solution can benefit your business.

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