By Jean Francois Mourier 
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 property¹s 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 don¹t 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 property¹s bank accountŠ but that¹s 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. That¹s 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 I¹d 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 doesn¹t 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 aren¹t earning as much revenue as the other property.

T-ADR addresses this problem by offering a consistent baseline metric to evaluate a property¹s 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 property¹s 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 protected] or calling us at +1.786.478.3500.

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Jean Francois Mourier is CEO and Founder of REVPAR GURU, a company that provides hotels around the world with an alternative revenue management software system designed to deliver maximum bookings and profits.  You can reach Jean Francois through www.revparguru.com or by calling 1.786.478.3500.