What is an Average Daily Rate (ADR)?

The average daily rate (ADR) is a key performance indicator in the hospitality industry. It represents the average revenue earned per rented room in a given period. ADR is crucial for gauging a hotel’s operational performance and pricing strategy effectiveness, helping to optimize revenue and understand market position.

Key Takeaways

  • Revenue Management Indicator: ADR is a crucial KPI in the hotel industry, revealing the average rental income from occupied rooms, essential for evaluating current operating performance.
  • Performance Benchmarking Tool: It allows hotel owners to compare their performance with others or against their historical data, aiding in strategic revenue management.
  • Strategic Revenue Growth: The goal is to increase ADR through effective pricing and promotions, forming a core part of revenue management strategies. However, ADR doesn’t account for overall hotel performance, excluding other revenue sources and expenses.
  • Exclusive to Room Revenue: ADR focuses solely on revenue from occupied rooms, excluding income from other hotel areas like complimentary or house-use rooms.
  • Simple Calculation Formula: ADR is calculated by dividing the total room revenue earned by the number of rooms sold.

Introduction

Average daily rate (ADR) is a KPI commonly used for revenue management within the hotel industry. The primary value of ADR, as a metric, is its ability to reveal the average rental income connected to occupied rooms each day, which is valuable for revenue management. It can give hotel owners an idea of their current operating performance, especially compared to other hotels with similar characteristics.

What is ADR?

In simple terms, the average daily rate of a hotel is the average rental income per paid occupied room in a specific period. By calculating their ADR, owners within the hotel industry can compare their performance with other hotels, or against their historical performance, allowing them to change their revenue management.

As a metric, ADR is not concerned with revenue earned in other areas of the hotel. Complimentary rooms, house-use rooms, and other rooms given out free of charge are not factored into the calculation.

How Do You Calculate ADR?

The simple formula for calculating the KPI average daily rate (ADR) is as follows:

ADR = Rooms Revenue Earned / Number of Rooms Sold

It is important to note that, in addition to complimentary rooms being discounted from calculations, revenue earned away from room revenue is not factored in either, nor is any money paid back to guests.

Uses and Limitations

The ultimate goal should be to increase ADR through effective pricing and promotions so that this KPI can form a significant part of a revenue management strategy. With that being said, ADR does not give a true account of overall hotel performance, because it does not factor in revenue from other sources, or expenses.

More Revenue Management KPIs

KPI stands for Key Performance Indicator. With KPI, you can measure and identify areas of success and failure and trends related to demand and customer behavior. Besides ADR, other important Revenue Management KPIs are Occupancy rate, RevPAR, RevPOR, TRevPAR, NRevPAR, EBITDA, ARPA, and GOPPAR.

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This article is written by:

Hi, I am Martijn Barten, founder of Revfine.com. I am specialized in optimizing revenue by combining revenue management with marketing strategies. I have over 15 years of experience developing, implementing, and managing revenue management and marketing strategies and processes for individual properties and multi-properties.