As a vacation rental owner, you’ll come across many key performance indicators that are vital to property management. These KPIs represent the success of a company and help business owners make informed and strategic decisions.
Whether you want to focus on revenue management, competitive benchmarking, or occupancy trends, using KPIs will lead to much more accurate results.
What Is the Average Daily Rate?
The average daily rate is one of the top KPIs to measure the operating performance of your vacation rental. Known to be one of the best indicators for room quality, the ADR indicates the average revenue that an occupied room can earn in a day. So, why is it important and what can you do with this information?
Knowing the ADR of your vacation home can help you come across major flaws in your business plan and maximize your revenue. It allows you to compare your rates across longer periods of time, analyze key trends, and see how well your competitors are doing.
Being able to examine and interpret your rates over time is a skill that can improve your business. Not only can it indicate serious problems, but it’ll also guide you in key decisions regarding your strategy.
How to Calculate Your Average Daily Rate
Calculating your ADR is a breeze! Just divide the total revenue that is earned by the rooms occupied on a given day by the total number of rooms occupied.
Let’s take a look at an example. Say you have rented out 25 rooms, bringing in $4000. To get the ADR, you’d have to divide $4000 / 25. The ADR would therefore be $160.
Keep in mind that you’re dividing by the total number of rooms occupied, not the total number of rooms. This is a common mistake that leads to inaccurate results.
How to Increase Your Average Daily Rate
It’s no secret that there are a lot of operational costs when it comes to managing a vacation rental. With expenses racking up, increasing your revenue (and therefore increasing your average daily rate) is the best way to balance out the costs.
That said, there is no single best way to increase your average daily rate. In order to do so, you need to consistently improve multiple aspects of your business. Here are 7 ways to increase your average daily rate and drive your vacation rental to success:
1. Focus on your brand marketing
The perception your customers have of your business is known as your brand image. It’s your personality and the feeling people get when they think or hear about your company.
How can you improve your brand marketing? These are just a few ideas to help you get started:
- Analyze your target audience and competitors
- Rename your company
- Change your slogan
- Rebrand your design – this includes the logo, color palette, typography, etc.
- Get more involved on social media and engage with your audience
Once you find what works for you, be consistent, and make sure everyone on your team has the same vision and understanding of the brand! The better your positioning, the more acceptable it is to set higher rates.
2. Get your pricing right
Price plays a big role in your average daily rate. If your prices are too high for your target audience, you won’t attract enough guests. If your prices are too low, you’ll probably get more bookings but your profit and average daily rate won’t be ideal.
Finding the right price for your vacation rental can be a tricky process if you don’t know what factors to consider. Start off by analyzing your expenses, your competitor’s prices, and occupancy rates throughout different seasons.
Consider using dynamic pricing, an algorithm that helps to optimize your rates and increase profit. The trick is to be flexible with your pricing as demand will rise and fall during certain periods or days of the year.
3. Improve guest experience
In a study done by Chris Anderson, a professor at Cornell University, he concludes that hotels can increase their price by 11.2% (while maintaining the same occupancy) by doing one simple thing: raising their review score by just 1 point!
Enhancing guest experience can be done in many ways such as improving communication, offering useful information and amenities, preparing a welcome basket, or providing a unique and personalized vacation rental experience. The happier your guests, the more likely they are to return in the future and recommend you to their friends and family. The result? More bookings and a higher average daily rate!
4. Start upselling services
Most vacation rental owners are missing out on a big source of revenue – upsells! Upselling is a sales technique that encourages guests to pay extra for services that can improve their overall experience. Not only does this allow your guests to upgrade their stay, but it also increases property revenue significantly.
It might come as a surprise but many guests are actually more than willing to pay for the following:
- Early check-ins or late check-outs
- Airport pick-up or transportation during their stay
- Luggage storage
- A birthday or anniversary basket
- Local tours
- Grocery delivery
The list goes on! Brainstorm what services you could upsell for your specific business depending on where you’re located and what your target market is interested in.
5. Keep an eye on your competitors
Keeping tabs on your competitors will always come in handy but when it comes to average daily rates, it’s crucial to know what similar businesses are charging their guests. Let’s say your prices are lower than your competitors but your overall ratings are much higher – this is a clear indication that it might be worth looking into your pricing strategy!
6. Offer discounts
Managing discounts can be tricky, but if you do it right, you’ll be able to attract a lot of new guests and increase revenue. Whether you’re looking into offering discounts on extended stays or promotions during low season, be strategic and consider all options before making a move.
7. Start your own vacation rental website
The list of benefits of having your own vacation rental website is endless but what stands out is the ability to accept direct bookings. By no longer having to pay the extra fees or commission that most online travel agencies charge, you’ll be able to increase your average daily rate in no time. And if that wasn’t enough, creating a vacation rental website also allows you to personalize and control every aspect of the site while increasing your credibility and reputation.
Use a channel manager to keep track of your bookings and avoiding human error. This incredible tool can take your business to the next level by syncing your calendars and rates from multiple online travel agencies such as Airbnb, Expedia, Booking.com, and Vrbo. Instead of having to manually update your calendars every time there is a booking on one platform, a channel manager automatically does the work for you.
What to watch out for
Average daily rates don’t include rooms occupied by staff, vacant rooms, complimentary rooms, or canceled bookings. Therefore, while calculating it is extremely useful for managing your property, it’s also important to keep an eye on other KPIs such as revenue per available room (RevPAR) and occupancy rates to get the full picture.
