What Is the Average Daily Rate (ADR)?
An average daily rate (ADR) is a metric widely used in the hospitality industry to indicate the average realized room rental per day. Average daily rate is one of the key performance indicators (KPI) of the industry.
Other KPIs are metrics such as occupancy rate and combined with ADR comprise revenue per available room (RevPAR), all of which are used to measure the operating performance of a lodging unit such as a hotel or motel.
The Formula for the Average Daily Rate (ADR) Is
How to Calculate the Average Daily Rate (ADR)?
Average daily rate is calculated by taking the average revenue earned from rooms and dividing it by the number of rooms sold. It excludes complimentary rooms and rooms occupied by staff.
What Does the Average Daily Rate (ADR) Tell You?
Average daily rate (ADR) shows how much revenue is made per room. The higher, the better. A rising ADR suggests a hotel is increasing the money it's making from renting out rooms. To increase ADR, hotels should look into ways to boost price per room. The ADR can be measured against a hotel's historical performance. It can also be used as a measure of relative performance since the metric can be compared to other hotels that have similar characteristics such as size, clientele and location.
Hotel operators seek to increase ADR by focusing on pricing strategies. This includes upselling, cross-sale promotions and complimentary offers such as free shuttle service to the local airport. The overall economy is a big factor in setting prices, with hotels and motels seeking to adjust room rates to match current demand.
- ADR measures the average realized room rental revenue per day, allowing one to assess the operating performance of a hotel or other lodging business.
- ADR can be measured against a hotel’s historical performance and other hotels.
- The ADR multiplied by the occupancy rate equals RevPAR.
Example of How to Use the Average Daily Rate (ADR)
If a hotel has $50,000 in room revenue and 500 rooms sold, the ADR would be $100. Rooms used for in-house use, such as those set aside for hotel employees and complimentary ones are excluded from the calculation.
As a real-life example, consider Marriott International (NASDAQ: MAR), a major publicly traded hotelier that reports ADR along with occupancy rate and RevPAR. For the second quarter of 2018, Marriott's ADR increased 1.9% to $163.05 in North America. The occupancy rate was up 0.9% to 78.7%. Taking the ADR and multiplying it by the occupancy rate yields the RevPAR. In Marriott's case, $163.05 times 78.7% equates to a RevPAR of over $128, which was up 3.1% from the same quarter last year.
The Difference Between the Average Daily Rate (ADR) and Revenue Per Available Room (RevPAR)
Average daily rate (ADR) is needed to calculate RevPAR. Average daily rate tells a lodging company how much they make per room on average in a given day. Meanwhile, RevPAR measures the average rate the lodging company gets for its available rooms. The RevPAR doesn’t take into account the hotel size and doesn’t mean the hotel profits are on the rise. However, ADR can be a better measure of profitability, showing whether the hotel's rates are on the rise or not.
Limitations of Using the Average Daily Rate (ADR)
The ADR does not tell the complete story about a hotel’s revenue. For instance, it does not include the charges a lodging company may charge if a guest does not show up. The figure also does not subtract items such as commissions and rebates offered to customers if there is a problem. A property’s ADR may increase as a result of price increases. However, this provides limited information in isolation. Occupancy could have fallen, leaving overall revenue lower.
Learn More About the Average Daily Rate (ADR)
See real-life examples of how to analyze the profitability and operations of hotel companies.