What is Average Daily Rate (ADR)?
Average daily rate (ADR), one of the three key hotel performance indicators (along with occupancy and RevPAR), is the measure of the average paid for rooms sold in a given time period. The metric covers only revenue-generating guestrooms.
ADR is a direct factor in revenue per available room (RevPAR), the hotel industry gold standard for measuring top-line performance in a hotel, portfolio, market segment or geographic area. The rooms department is typically the largest generator of revenue and profit for hotels. An effective approach to ADR is a key piece of the hotel revenue-management cycle with the goal of maximizing profitability.
How to calculate ADR (Formula and Examples)
ADR is calculated by dividing room revenue by rooms sold. The metric is of course applicable for any currency.
ADR = Room Revenue/Rooms Sold*
Example 1:
Hotel A, a large property in the U.S., sold 125 rooms last night with a room revenue of US$15,000. Thus, Hotel A’s ADR was US$120.
15,000/125 = 120
Example 2:
Hotel B, a small property in China with 30 rooms, sold 10 rooms last night with a room revenue of CNY6,000.
6,000/10 = 600
*In accordance with the Uniform System of Accounts for the Lodging Industry (USALI), rooms sold should only include revenue generating rooms or those occupied as part of a promotion or contract. Complimentary rooms not associated with a promotion or contract should not be included. Only revenue generated from guestroom rentals should be included in room revenue. View STR’s data reporting guidelines for more information.
How is ADR different from RevPAR?
Whereas ADR is based strictly on rooms sold (demand), the calculation for RevPAR is based on all available rooms (supply). Further, RevPAR is a function of occupancy rate and ADR.
RevPAR = Room Revenue/Total Rooms Available
Example 1:
Hotel A sold 125 of its 150 rooms last night with a room revenue of US$15,000. Thus, Hotel A’s RevPAR was US$100.
15,000/150 = 100
Example 2:
Hotel B sold 10 of its 20 rooms last night with a room revenue of CNY6,000.
6,000/20 = 300
As you can see when comparing the examples from ADR and RevPAR, the latter metric is lower because it factors each property’s available number of rooms regardless of the number sold.
How is Average Daily Rate (ADR) different from Average Room Rate (ARR)?
There really is not a difference. While referenced less frequently around the hospitality industry, average room rate (ARR) is another metric in measuring average price. The formulas for ADR and ARR are the same, but ARR might be preferred for reporting on average rate over longer periods of time.
How is ADR different from APR?
Whereas ADR reflects the actual amount paid for rooms in past days, weeks, months, years, etc., average published rate (APR) averages the range of published room rates for various room sizes (single or double, etc.) during different times of the year. When hotels in STR’s census database do not report data to STR, published rates are used to estimate ADR in industry reports.
Why is ADR important?
Ultimately, total revenue needs to be driven to increase profits. Total revenue grows higher when hotels understand the maximum amount a customer is willing to pay.
To get to the point where optimal ADR is being achieved, hotel industry stakeholders first must understand the vital role of benchmarking. Your performance is only part of the puzzle. Comparing your occupancy and room rates against the competition or market adds a necessary layer of context when measuring your success. ADR varies by room type, day of week, or market profile and fluctuates throughout the year due to seasonal demand patterns as well as the impact of special events and macroeconomic conditions.
Average daily rate is an essential measurement in the benchmarking process because of its direct relationship with demand, guest types and their price points, channels for distributing rooms and room promotions.
How to use ADR
Because RevPAR is a function of both occupancy and ADR, finding the optimal balance between the two metrics is key to advancing top-line performance. Occupancy-driven revenue strategies can be less effective because of operating costs.
On ADR specifically, there are two primary steps to benchmark as part of maximizing profit.
First, determine your own rate trends alongside patterns in demand by season, day of week, and customer mix. For example, if you have identified that Mondays and Tuesdays in the spring have produced enough transient demand to sell out, you may not want to take on a lower-priced group too early because it could displace higher-paying transient guests and bring down ADR without a gain in occupancy.
Next, compare your ADR levels against your competitors or market averages for the same segments and time periods. A foundation of the benchmarking process with STR is a comp set, which provides aggregate performance of the competition while adhering to strict confidentiality guidelines.
Benchmarkingyour ADR will allow you to answer questions such as:
- Is my ADR truly affecting my occupancy levels?
- Do I need to change my rate strategy during lower demand periods?
- What is the optimal occupancy and ADR balance for growing RevPAR?
- Do groups provide opportunities for greater contribution to my total revenue?
- Am I taking advantage of high demand periods the same as my competitors and market?
As mentioned, the rental of rooms is the largest revenue source for hotels in most regions of the world. However, rooms are not the only revenue stream, so it is important to measure ADR in addition to other revenue-generating departments in developing the full picture of total revenue and profitability. This helps maximize high-performing departments or identify gaps between occupancy/ADR growth and profitability.
I'm a seasoned expert in hotel management and revenue optimization, with an in-depth understanding of key performance indicators such as Average Daily Rate (ADR), Revenue per Available Room (RevPAR), and other crucial metrics in the hospitality industry. Over the years, I've worked closely with hotels of various sizes and locations, implementing effective revenue management strategies to maximize profitability.
Now, let's delve into the concepts mentioned in the provided article:
Average Daily Rate (ADR):
Definition: ADR is a fundamental metric in the hotel industry, representing the average amount paid for rooms sold in a specific time period.
Calculation: ADR is calculated by dividing room revenue by the number of rooms sold. The formula is ADR = Room Revenue / Rooms Sold.
Examples: Hotel A, with 125 rooms sold at US$15,000, has an ADR of US$120 (15,000 / 125 = 120). Hotel B, with 10 rooms sold at CNY6,000, has an ADR of CNY600 (6,000 / 10 = 600).
RevPAR (Revenue per Available Room):
Definition: RevPAR is a key performance indicator calculated by dividing room revenue by the total number of available rooms.
Calculation: RevPAR = Room Revenue / Total Rooms Available.
Examples: Hotel A, with 125 rooms sold at US$15,000 and 150 rooms available, has a RevPAR of US$100 (15,000 / 150 = 100). Hotel B, with 10 rooms sold at CNY6,000 and 20 rooms available, has a RevPAR of CNY300 (6,000 / 20 = 300).
Average Room Rate (ARR):
Relationship with ADR: ARR is essentially the same as ADR. While ADR is more commonly used, ARR may be preferred for reporting average rates over longer periods.
Average Published Rate (APR):
Difference from ADR: ADR reflects actual amounts paid for rooms, while APR averages the range of published room rates for different room sizes and times of the year.
Importance of ADR:
Revenue Optimization: ADR is crucial for maximizing profitability, as understanding the maximum amount a customer is willing to pay contributes to overall revenue growth.
Benchmarking: Benchmarking ADR against competitors and market averages provides context for measuring success and adjusting rate strategies.
How to Use ADR:
Optimizing Balance: Finding the right balance between occupancy and ADR is key to advancing top-line performance, considering the impact of operating costs on revenue strategies.
Benchmarking Steps: Understand rate trends, demand patterns, and customer mix. Compare ADR levels against competitors and market averages.
Total Revenue Consideration: While rooms are a primary revenue source, measuring ADR along with other revenue-generating departments provides a comprehensive view of total revenue and profitability.
In conclusion, ADR is not just a metric; it's a strategic tool that, when used effectively, can significantly impact a hotel's financial performance.
