Posted by myDigitalOffice on September 07, 2019 in Best Practices

Hotel STR, ADR and RevPAR Explained

Hotel STR, ADR and RevPAR Explained

The hospitality industry is one of prestige and lineage. It takes years of experience, research and learning to develop the skills and strategies necessary to regularly exceed guests’ expectations. Offering guests of varied lifestyles equally exceptional hotel or resort stays requires immense effort and attention to detail. 

The logistics of business and property management also requires hoteliers to have extraordinary acumen to ensure operational efficiency. Achieving this demands the aggregation and analysis of data. Without key insights into individual, market and industry-wide data, property managers run the risk of slowly leaking profits through any number of inefficiencies. 

All this considered, hotels are family businesses. So, while the current crop of GMs started their careers through hotel schools, the next generation of CEOs will grow up in the business.

The Next Generation of Hoteliers

Ensuring a smooth transition as ownership of hotels, both large and small, is passed down to the next generation is paramount. Luckily, growing up in the hotel business provides key insights into the distribution landscape and ideal profit and loss numbers of the hotel industry. However, it’s important that new hotel managers understand not just the what, but the how of running a successful hotel.

So, let’s dive into some of the key performance indicators (KPIs) that distinguish property management success from anguish.

What is the Smith Travel Accommodations Report (STR)?

Founded in 1985, Smith Travel Research (STR) has had the singular focus of collecting, analyzing and reporting hotel industry data. Since 1988, STR has released a monthly market share report and acts as a census database for all things hospitality, from competitive benchmarking to consumer research. 

What this means for hoteliers is that they can acquire access to THE standard in hospitality industry data that has helped industry giants thrive for decades. Whether you’re looking to corner your current market or establish a plan for steady and sustainable growth, STRs are the perfect building blocks.

The average hotel in the US is 115 rooms (source). For asset managers with multiple properties under their portfolio, this leaves a lot of room for error if you don’t set your rates appropriately. Making decisions with a bird’s eye view can account for both minute and major market shifts. The last thing you want is for guests to arrive to your property expecting one thing and receiving another. STRs offer historical data to empower even the newest of hoteliers with the wisdom of veteran GMs to make sure that every room of every property is priced to perfection. This can also help managers distinguish between trends that will last and ones that will pass.

Defining ADR or Average Daily Rate

One KPI that you’ll find in an STR is the Average Daily Rate (ADR) for a hotel. To account for the difference in room rates within a given hotel, data analysts devised a simple formula for tracking the overall performance of a hotel. The ADR formula includes:

ADR = Total room revenue for that day / The total number of rooms sold that day

By isolating just room revenue from upgrades and other miscellaneous revenue streams, hotels can accurately judge how competitive they are within their market or submarket. If desired, hoteliers can take their ADR data a step further by reviewing their ADR in relation to competitors with STR’s Average Rate Index (ARI), which aggregates similar hotel data and scores it. An ARI of 100 is deemed a fair market share.

ADR is a pillar metric for any property manager. Having a firm grasp on your hotel’s ADR will help you decide whether or not your rates are consistent with customer expectations and market demand. 

Understanding RevPAR

Another similar and equally critical metric for hoteliers is RevPAR, or Revenue Per Available Room. Do more rooms really translate to more profits? Is your property primed for an expansion? RevPAR offers an overview of your hotel’s ideal occupancy rate and allows hoteliers to strategize accordingly to better allocate their resources. It does so through this formula:

RevPAR = Total room revenue for that day / Number of rooms available

How New Hoteliers Can Optimize Their Data Utilization

Having a strong grasp on the KPIs that make or break the success of a hotel is a major responsibility of hoteliers. Studying STRs, ADRs and RevPARs for your properties will empower your decision making and fuel your growth for generations to come.

Helping data analysis seamlessly intertwine with the many other responsibilities of property management is where we come in. At MyDigitalOffice, our cloud-based software integrations enable hoteliers to have a bird’s eye view of the performance of their entire portfolio, while also hosting applications for marketing, operations, HR and more. 

Robust enough to support major chains, simple enough to streamline your processes – experience the versatility of myDigitalOffice today by scheduling a personalized demo!

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