Mastering ADR in Short-term Rentals
Kate Stoermer 
Projecting Income and Mastering Benchmarking for your STR Business
In the intricate world of short-term rentals (STRs), understanding and optimizing your Average Daily Rate (ADR) is like holding the key to a treasure chest. It’s not just about setting a price; it’s about deeply comprehending the market and your place within it. In this blog, we'll navigate the nuances of ADR, exploring effective data sources and dissecting the factors that drive pricing in the STR market.
The Role of ADR in STRs
ADR serves as a critical barometer in measuring the financial health of your rental property. It's the average price your property fetches per day, a figure that, when multiplied by your occupancy rate, gives you a snapshot of your potential income. Understanding ADR helps in forecasting income potential and benchmarking performance against competitors. But how do you accurately measure and optimize it?
The Power of Data: Choosing the Right Source
My go-to for market intelligence is AirDNA. Their expansive database, which scrapes data from both Airbnb and VRBO and makes educated assumptions about direct bookings, offers a comprehensive view of the market. While Airbnb and VRBO are valuable platforms, they offer an incomplete picture when used in isolation. An annualized view is crucial for a well-rounded analysis.
Pricelabs and Data Rabbu are also part of my arsenal. While I use Pricelabs primarily for portfolio management, Data Rabbu helps in confirming my numbers, ensuring that my strategies are data-driven and grounded in reality.
No data source is 100%; I typically suggest AirDNA is getting me 80% of the way there. Having done hundreds and hundreds of analyses - and seeing those pan out, I know what I am speaking about. I also frequently audit my data sources against actual earnings and sometimes its WWWAAYY off.
And a final note on data sources - there are MANY data sources, and I don’t mean to disparage others. Whatever sources you lean into, understanding the source of data, limitations, and experience interpreting it will help ensure your benchmarking is as close to accurate as possible.
Understanding What’s Included in ADR
Revenue data is typically a reflection of the funds transferred to the owner or property manager (listing owner). I’ve worked with many folks who believed ADR was the daily rate, but its actually a formula of all revenue divided by booked days. This means it includes cleaning fees, taxes, pet fee’s etc. This is all revenue, so when you run your analyses keep this in mind. I’ve had the unfortunate experience of working with individuals who failed to account for the cleaning fee - believing it was “just a pass through”. While it may be, it “passes through” as revenue - you don’t want to fail to account for $15,000 in cleaning fees!
Deciphering Price Drivers
Understanding what influences ADR in your specific market is paramount. While we may understand what drives price, it is actually pretty market specific. It seems reasonable that proximity to highly desirable locations (ocean front) drives up price, but don't fall into any traps of assuming. We all see swimming pools as price drivers - it increases ADR three-fold in one of my markets, but I did come across a market where a pool had literally zero impact on ADR. I’ve had that experience with hot tubs as well. So digging into to the market to really understand is key.
A recent Portuguese study (Cervera, Yabar, & Curiel, 16 Nov 2022) further sheds light on the main price drivers:
Size/Capacity: Accounting for a whopping 72% of the price, the size and capacity of your property are pivotal.
Equipment: Making up 18%, the quality and extent of your equipment (think luxury amenities, technology) significantly impact ADR.
Socio-Demographic Features: The area’s characteristics play an 11% role in pricing.
Honing in on Your Comp Set
It's not enough to just look at your market as a whole, and when we figure ADR for a market if we stop there we’ve stopped much too soon to have valuable data. The real magic happens when you zoom in on your specific competitive set. What sets your property apart? Is it the location, the unique amenities, or perhaps the bespoke experience you offer? These factors not only differentiate your property but also influence how you position it price-wise. If you aren’t quite sure, my Listing Optimization Course helps you narrow down on defining your audience, market, submarket, and niche - complete with case studies and worksheets to support your journey to optimize. Learn more about that HERE.
The Intersection of Market, Offer, and Customer
Remember, price is a marketing and sales tool that reflects the equilibrium point where the market, your offer, and the customer’s perception of value meet. It's a delicate balance of understanding market dynamics, aligning them with your property’s unique attributes, and meeting customer expectations.
Running Your Business Like a Boss
I’m The CEO Host, and I believe - deeply, our businesses are most profitable when we have an organized, data-driven process to run it. I talk a lot about benchmarking; this is the critical data-driven aspect of our business. Benchmarking ADR is the only way for us to really objectively assess how well our STR is performing.
Every month, I document on a spreadsheet my ADR and Occupancy, conversion rate and other metrics. Quarterly, I document my market stats including the number of short-term rentals, number of STR of my size/occupancy, etc. I have to pool the data from multiple sources, but having it all in one place is invaluable. It allows me to respond to changes in market conditions much more quickly - and thoughtfully, than having to figure it out while staring at a sharp drop in revenue or a missed opportunity. I’m sharing this to encourage you to do the same.
The Path Forward
For those early in their STR journey, wrapping your head around ADR can be intimidating - or worse, presented as simple when in fact it NEVER is. If you are new to STR, then learn more with my Short-Term Rental Roadmap (HERE) including a downloadable excel STR analyzer - its a great starting point for someone new to STR (and at $5, its a steal!)
In conclusion, mastering ADR in the STR market is a blend of art and science. It requires a keen understanding of market dynamics, a deep dive into data, and an appreciation of your property’s unique position within the comp set. With these insights, you’re not just setting a price; you’re crafting a strategy that maximizes your income potential and solidifies your market position.
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Need some help? I offer 20 minute calls - no strings, to help you answer your trickiest questions. Some folks go on to work with me - sure (hey, I have to make a living) but some folks just need 20 minutes and I'm happy to connect and learn from you, with you, and help you too. Book a time HERE.
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Hey Boss! I'm Kate, owner/founder of The CEO Host. If you are interested in taking a leap into short-term rentals - or have some questions about your existing business, my goal - passion, and career, is to help YOU succeed. I've coached hundreds of folks getting started or looking to optimize, analyzed more deals (and duds) than I could count, completed thousands of hours of education and training, attended conferences... So don't be shy. A good CEO knows to bring in expert help - and that's what I'm here for! Lets HOP ON A CALL and chat!