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What Is the Average Daily Rate (ADR)?
Let me explain the average daily rate, or ADR, which is a metric you see a lot in the hospitality industry. It tells you the average revenue earned for each occupied room on a given day. As one of the key performance indicators in this field, ADR helps gauge how well a hotel or motel is doing.
You should also know about the occupancy rate, another KPI. When you combine it with ADR, you get revenue per available room, or RevPAR. These metrics together let you measure the operating performance of any lodging business.
Key Takeaways on ADR
Here's what you need to remember: ADR measures the average rental revenue from each occupied room per day. You can determine a hotel's operating performance using this metric. If you multiply ADR by the occupancy rate, you get RevPAR. And remember, hotels can raise their ADR through smart price management and promotions.
Understanding the Average Daily Rate (ADR)
When I talk about ADR, I'm referring to how much revenue a hotel makes per room on average. The higher this number, the better it is for the business. If ADR is rising, that means the hotel is pulling in more money from room rentals. To push ADR up, you should consider ways to increase the price per room.
As a hotel operator, I focus on pricing strategies to boost ADR. This might involve upselling, cross-selling promotions, or complimentary services like a free shuttle to the airport. The economy plays a big role here—hotels adjust rates based on current demand.
To check a lodging's performance, compare its ADR against historical data. This reveals trends, like seasonal changes or the success of promotions. You can also benchmark it against similar hotels in terms of size, clientele, and location, which helps set accurate room prices.
Calculating the Average Daily Rate (ADR)
Calculating ADR is straightforward: take the total revenue from rooms and divide it by the number of rooms sold. Exclude any complimentary rooms or those used by staff. The formula is Average Daily Rate = Rooms Revenue Earned / Number of Rooms Sold.
Example of the Average Daily Rate (ADR)
Suppose a hotel earns $50,000 in room revenue with 500 rooms sold. That gives an ADR of $100, since $50,000 divided by 500 is $100. Again, don't include rooms for in-house use or complimentary stays in this calculation.
Real World Example
Take Marriott International as an example—they report ADR, occupancy, and RevPAR publicly. In 2019, their ADR in North America rose 2.1% from 2018 to $202.75. Occupancy stayed at 75.8%. Multiplying that ADR by the occupancy rate gives RevPAR of $153.68, up 2.19% from the previous year.
The Difference Between ADR and RevPAR
You need ADR to calculate RevPAR. ADR shows how much a lodging makes per room on average each day. RevPAR, on the other hand, measures how well the place fills its rooms at that average rate. If occupancy isn't 100% and RevPAR is below ADR, it might mean you should lower prices to boost occupancy.
Limitations of Using the Average Daily Rate (ADR)
ADR doesn't give the full picture of a hotel's revenue. For instance, it ignores charges for no-shows. It also doesn't account for commissions or rebates given to unhappy customers. If ADR increases due to higher prices, that's fine, but in isolation, it might hide falling occupancy, which could lower overall revenue.
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