Average Daily Rate (ADR): Definition, Calculation, and Examples
To determine the average income received for an occupied room on a given day, the hotel sector frequently uses the average daily rate (ADR) measure. The average daily rate is one of the industry’s key performance indicators (KPIs).
Occupancy rate is another KPI indicator that, when paired with ADR, yields revenue per available room (RevPAR). These metrics assess how well a lodging establishment, such as a hotel or motel, runs.
Knowing What the Average Daily Rate (ADR) Means
The average daily rate (ADR) displays the average income per room. The better, the greater the ADR. An increased average daily rate (ADR) indicates that a hotel earns more from room rentals. Hotels should investigate strategies to raise the price per room to raise the ADR.
Hotel owners concentrate on pricing methods to raise ADR. This covers marketing that cross-sells, upsells, and freebies like a shuttle to the nearby airport. The state of the economy as a whole has a significant influence on pricing as hotels and motels try to modify room rates to correspond with demand.
The ADR of a lodge can be compared to its previous ADR to find trends, such as the impact of the seasons or the effectiveness of particular promotions, to assess the operational success of the establishment. Since the statistic may be compared to other hotels with comparable attributes, such as size, clientele, and location, it can also be used to measure relative performance. This makes room-rental pricing more accurate.
How to Determine Your Average Daily Rate (ADR)
One may get the average daily rate by dividing the average revenue from rooms by the total number of rooms sold. Accessible rooms and staff rooms are not included in it.
Average Daily Rate = Revenue From Rooms
Total Number of Sold Rooms
The average daily rate is equal to the number of rooms sold. Earned Revenue
An illustration of an average daily rate (ADR)
The average daily rate (ADR) for a hotel with 500 rooms sold and $50,000 in room revenue would be $100 ($50,000/500). The figure does not include internally utilized rooms, such as gratis rooms and rooms reserved for hotel staff.
Real-World Illustration
Take Marriott International (MAR), a significant publicly listed hotel chain that discloses ADR in addition to RevPAR and occupancy rate. Marriott’s ADR in North America grew to $202.75 in 2019—a 2.1% rise from 2018. At 75.8%, the occupancy rate was essentially unchanged. The RevPAR is obtained by multiplying the occupancy rate by the ADR. For Marriott, $202.75 times 75.8% equals a RevPAR of $153.68, representing a 2.19% increase over 2018.
The Disturbance Between Revenue Per Available Room (RevPAR) and Average Daily Rate (ADR)
To get the revenue per available room (RevPAR), one must know the average daily rate (ADR). An accommodation provider’s average daily rate indicates how much money they make per room on a typical day. In the meantime, RevPAR assesses how well a hotel can fill its available rooms at the going rate. A hotel operator is aware that the average price per room may be lower to boost occupancy if the occupancy rate is below 100% and the RevPAR is lower than the ADR.
The Average Daily Rate’s (ADR) Drawbacks
The ADR does not fully convey the income narrative of a hotel. It excludes, for example, what a hotel firm would charge for a visitor who fails to show up. Additionally, the amount does not deduct things like commissions and client refunds in the event of an issue. Price rises may increase a property’s ADR; however, this information is not very useful. There’s a chance that occupancy dropped, lowering total revenue.
Conclusion
- The average daily rate (ADR) expresses the daily rental income of a rented room.
- The ADR may be used to assess how well a hotel or other accommodation establishment is running.
- The revenue per available room may be calculated by multiplying the ADR by the occupancy rate.
- Hotels and motels can raise the average daily rate (ADR) through pricing control and advertising.
