What is Average Daily Rate (ADR)?
The Average Daily Rate (ADR) is a critical metric in the hospitality industry that reveals the average revenue earned for an occupied room per day. This is one of the essential key performance indicators (KPI) used by hotels and other lodging businesses.
Another key performance indicator is the occupancy rate. When combined with the ADR, it forms the basis for calculating Revenue Per Available Room (RevPAR), which is pivotal for assessing the operational performance of a property.
Key Takeaways
- Measurement of Revenue: The ADR gauges the average rental revenue earned for each occupied room.
- Indicator of Performance: It is a significant metric to determine the financial performance of hotels and similar businesses.
- RevPAR Calculation: ADR multiplied by the occupancy rate gives the RevPAR, highlighting the revenue per available room.
- Revenue Strategies: Hotels can enhance ADR through sophisticated pricing tactics, promotions, and value-added services.
Understanding the Average Daily Rate (ADR)
The Average Daily Rate (ADR) demonstrates how much revenue a hotel accumulates per occupied room on average. An increasing ADR indicates higher income from room rentals. Focusing on ADR, hoteliers adopt varying pricing strategies, such as upselling and promotions, alongside economic factors that influence room rates.
To boost the ADR, hoteliers might explore pacakage deals, special promotions, and providing value-added services such as complementary breakfast or airport shuttle services.
Hoteliers benchmark ADR against historical data to spot trends and relative performance. Comparing ADR with similar hotels in terms of size, location, and clientele helps in setting competitive rates.
Calculating the Average Daily Rate (ADR)
The ADR is calculated by dividing the total room revenue earned by the number of rooms sold. Complimentary rooms and staff-occupied rooms are excluded from this equation.
ADR =
\frac{Total \;Room \;Revenue}{Number \;of \;Rooms \;Sold}
For example, if a hotel earns $50,000 in room revenue and sells 500 rooms, its ADR will be $100.
Real-World Example – Marriott International
Consider Marriott International, an internationally recognized hotel chain, which reported its ADR alongside occupancy rates and RevPAR. For instance, in North America for 2019, their ADR rose by 2.1% to $202.75 compared to 2018. With an occupancy rate static at 75.8%, Marriott’s RevPAR resulted in $153.68, which accounts for a year-over-year increase in RevPAR of 2.19%.
ADR vs. Revenue Per Available Room (RevPAR)
Both ADR and RevPAR are necessary for understanding a hotel’s revenue metrics. @endustersaanubbslogging company’s ability to fill rooms at the average rate. For example, a lower RevPAR relative to ADR highlights potential underutilization of available rooms, signaling a need to modulate price points to make rooms more attractive to travelers. However, with ADR, a business only learns about income from rented spaces without considering unsold rooms.
Limitations of Using the Average Daily Rate (ADR)
While invaluable, ADR alone doesn’t provide comprehensive insight into total earnings. It omits no-show charges, commissions and occurrences of rebates. Although an increase in ADR indicates higher rental revenue strategically, it might conceal declining occupancy, affecting overall revenue.
Hotels need a holistic view combining ADR with complimentary metrics like OR and RevPAR for actionable insight into performance.
Related Terms: RevPAR, occupancy rate, revenue management, KPI.
