How To Increase Your ADR, Series 1
With a 25+ year career in revenue, I cannot begin to count the number of times that I have been asked that very question.
Revenue Managers of old may have gone to the first tool in their toolbox and that is ‘increase the rate’. Sounds simple, right? Of course nothing is ever that straightforward and this series of blogs should help you explore some other options for cracking the holy grail of revenue.
Before I start, I feel that I should point out that this is all about top line revenue and we haven’t even started to think about COCA (cost of customer acquisition – aka commission) but for now, let’s start at the start…
Series One – Channel Shift
Many owners, managers and finance departments still continue to add pressure to Revenue Managers to increase rate. Often there is little wiggle room in occupancy, so the next ‘go to’ is drive the rate up. But take a step back and ask, ‘what exactly does that mean?’. Often the pressure is to increase BAR – just keep pushing the rate by an extra £5.00 and that will get us what we need. Right? Wrong!
There are many considerations need to be made:
How price sensitive are your customers?
Does your product offering match the rate increase you are being asked to achieve?
Does your service level match the rate increase you are being asked to achieve?
How will this affect your placement within your competitive set?
Will this impact your OTA ranking (yes, I love talking about the OTA’s!!!)
Can you sustain this rate increase midweek or in low season?
Will this impact that delicate balance of occupancy v rate?
Can you actually explain to your customers the justification for this rate increase?
What if we tried something different… What if we took the same business as we have always had and simply ‘shifted’ it?
Below is a purposefully simplistic example but bear with me…
Let’s pretend you have a hotel with 3 simple segments. Of course all have a different ADR and all have an existing percentage contribution to your business.
Set yourself up a simple spreadsheet or alternatively login to Right Revenue (unashamed plug of course) and run the maths.
What if you simply restricted the flow of one segment and allowed the tap to be turned on in another.
In this example, I have re-ran the numbers with an increased Leisure Individual segment, a slightly increased Events segment and reduced my dependency on Tours.
With exactly the same room contribution, we not only have added £67,000 to the bottom line, but we have also achieved the holy grail of increasing our ADR by £11.16
So, okay, an extreme yet simple example, but what would the impact be if you applied similar logic to your own business?
There are considerations to be made of course.
Do you believe you can attract growth in your preferred segment? A real life scenario is where a hotel partner is being asked by their FC to increase ADR and their main segment is Leisure Individual. If that segment is (for example) heavily reliant on events and you don’t have the same number of events this year as you may have had before, then any increase will be difficult if not impossible.
Will this uplift from your preferred segment cost you more to acquire (increased commission for example)
Will your preferred segment spend the same or more revenue in your outlets?
As with all revenue decisions, running the maths can take the emotion out of decision making and also help present facts to those asking the questions or needing answers.
Running the maths will also help great Commercial Leaders back-up the decisions they are making. It can prove where price elasticity can be achieved or even when the increases being demanded are perhaps not achievable…
Watch this space for the next instalment…
(no ChatGPT algorithm was hurt in the making of this article)
