There are a lot of acronyms in the hotel industry. Breaking down the difference in RevPAR vs ADR will help you make strategic decisions in your hotel operations, revenue optimization, and guest acquisition strategy.
In this blog post, we’ll unpack the difference in RevPAR vs ADR, and go over some strategies to increase these key metrics.
Defining RevPAR vs ADR
ADR stands for Average Daily Rate, and it is the average price paid per occupied room. It is calculated by dividing total room revenue by the number of occupied rooms. Understanding ADR over time will provide insight into your overall pricing strategy and potential areas for optimization.
For example, if your hotel has 20 rooms, you sold 10 at different rates and your total revenue was $5,000, then your ADR would be $500. ADR is an important KPI because it reflects the fact that no hotel is selling all of their rooms for the same rates, and you need an average number to track across the board.
If we look at this example ADR calculation, you’ll of course notice that half of your rooms stayed empty. RevPAR is the other metric used to factor this in.
RevPAR stands for Revenue per Available Room. It is calculated by multiplying ADR by the occupancy rate, or dividing total room revenue by the number of available rooms. In the scenario outlined above, the RevPAR is $250 (500 x 0.5 = 250).
While ADR tells you how much revenue is generated on average by your rooms, RevPAR gives a slightly more complete picture by factoring the cost of unsold rooms. It is a measurement of your hotel’s financial success filling rooms.
To increase RevPAR, you’ll need to increase either number or both. That is, sell more rooms (increase occupancy) or increase the average cost you’re charging per room.
Using and measuring ADR & RevPAR
It’s also important to remember that even when weighing RevPAR vs ADR, these are only two measures of revenue and hotel performance. These numbers measure revenue alone, without factoring in costs, upkeep, staffing, and so on.
ADR is useful as a tracking tool over time. Measuring ADR throughout the year will help you better understand seasonality and overall performance. Similarly, RevPAR is useful as a point of comparison over time and against a hotel’s comp set.
Given how important these calculations are, it’s essential that hotels rely on technology that makes them easy to calculate, track, and share internally. Your hotel property management system stores and maintains all of this information. A better PMS partner makes it easy to access and understand these key hotel metrics.
Improving revenue and success
These metrics provide a high-level overview of the success of your hotel. Once you understand RevPAR vs ADR you’ll also need to understand ways to boost these numbers. Understanding these numbers will help you make strategic decisions about your hotel operations, spending, and pricing strategy.
Your hotel technology also plays a key role in improving these numbers. Read how your front desk software can help maximize revenue. Your operations software can increase RevPAR and ADR by streamlining processes, enhancing the guest experience to drive loyalty, and by providing insights into your pricing and inventory.
Some specific ways to boost these key performance indicators via your PMS include:
- Yield management – your PMS is essential to analyzing demand patterns and occupancy rates
- Better inventory management – real-time visibility into room inventory via cloud-based PMS lets you better manage occupancy levels
- Up-sells and cross-selling – increase daily revenue with incremental revenue streams outside your room rates
Better property management software is essential to improving revenue at your hotel. Get a demo of a better solution today with Chorum PMS.