Average Daily Rate (ADR) Calculator

Author: Neo Huang Review By: Nancy Deng
LAST UPDATED: 2024-07-21 20:53:39 TOTAL USAGE: 195 TAG:

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What is Average Daily Rate (ADR)?

Average Daily Rate (ADR) is one of the three key performance indicators in the hotel industry (the other two being occupancy rate and RevPAR), used to measure the average revenue earned from rooms sold over a specific period. This metric only includes revenue-generating rooms.

ADR is a direct factor of Revenue Per Available Room (RevPAR) and serves as a gold standard for assessing revenue performance of a hotel, hotel collection, market segment, or geographic area. The rooms department typically contributes the largest share to hotel revenue and profit. An effective ADR strategy is a crucial part of the hotel revenue management cycle, aiming to maximize profitability.

How to Calculate ADR (Formula and Examples)

ADR is calculated by dividing room revenue by the number of rooms sold. This metric can be applied in any currency.

\[ \text{ADR} = \frac{\text{Room Revenue}}{\text{Rooms Sold}} \]

Example 1: Hotel A in the United States is a large hotel. Last night, 125 rooms were sold, and room revenue was $15,000. Therefore, Hotel A’s ADR is $120. \[ \frac{15,000}{125} = 120 \]

Example 2: Hotel B in China has 30 rooms, 10 of which were sold last night, generating room revenue of 6,000 RMB. \[ \frac{6,000}{10} = 600 \]

*According to the Uniform System of Accounts for the Lodging Industry (USALI), the number of rooms sold should only include revenue-generating rooms or rooms sold as part of a promotion or contract. Complimentary rooms not related to promotions or contracts should not be included. Only revenue from room rentals should be included in room revenue.

Differences Between ADR and RevPAR

ADR is strictly based on the number of rooms sold (room demand), while RevPAR is calculated based on all available rooms (room supply). Additionally, RevPAR is a function of occupancy rate and ADR.

\[ \text{RevPAR} = \frac{\text{Room Revenue}}{\text{Total Available Rooms}} \]

Example 1: Hotel A in the United States has 150 rooms, 125 of which were sold last night, generating room revenue of $15,000. Therefore, Hotel A’s RevPAR is $100. \[ \frac{15,000}{150} = 100 \]

Example 2: Hotel B has 20 rooms, 10 of which were sold last night, generating room revenue of 6,000 RMB. \[ \frac{6,000}{20} = 300 \]

Comparing ADR and RevPAR, the RevPAR metric is lower because it considers the total number of rooms available in a hotel, regardless of how many were sold.

Differences Between ADR and ARR

There is no significant difference between ADR and ARR. Although Average Room Rate (ARR) is rarely mentioned in the hotel industry, it is another metric for measuring the average price. The calculation formulas for ADR and ARR are the same, but ARR may be preferred when reporting the average room rate over a longer period.

Differences Between ADR and APR

ADR reflects the actual amounts paid over the past days, weeks, months, or years, while Average Published Rate (APR) calculates the average based on the rates for different room types (single or double) at different times of the year. If hotels in our census database do not provide data, the published rates are used as a reference to estimate the ADR in industry reports.

Importance of ADR

Ultimately, to increase profit, total revenue must be increased. If a hotel understands the highest amount guests are willing to pay, total revenue will increase.

To achieve optimal ADR, stakeholders in the hotel industry must first understand the importance of benchmarking. Performance is only one part. Comparing occupancy rates and room rates with competitors or the market adds a necessary layer of context when measuring success. ADR varies by room type, day of the week, or market profile, and fluctuates throughout the year due to seasonal demand patterns, special events, and macroeconomic conditions.

Because ADR is directly related to demand, guest types and their price points, room distribution channels, and room promotions, it is an essential metric in the benchmarking evaluation process.

How to Use ADR

Since Revenue Per Available Room (RevPAR) is a function of occupancy rate and ADR, finding the best balance between these two metrics is key to improving revenue performance. Due to operating costs, a revenue strategy driven by occupancy may be less effective.

Specifically, for ADR, benchmarking involves two main steps as part of profit maximization.

First, identify your pricing trends and demand patterns based on seasons, days of the week, and customer mix. For example, if you find that Monday and Tuesday in the spring already generate enough demand to sell out, you might not want to take low-rate group bookings too early, as this could replace higher-paying transient guests and lower ADR without increasing occupancy.

Next, compare your ADR levels with competitors or market averages for the same segment and time period. The foundation of the benchmarking process is the competitive set, which provides overall performance of competitors while adhering to strict confidentiality guidelines.

Benchmarking your ADR allows you to answer the following questions:

  • Is my ADR really affecting occupancy rate?
  • Do I need to change my pricing strategy during low-demand periods?
  • What is the optimal balance of occupancy rate and ADR for RevPAR growth?
  • Do group rooms offer greater contribution opportunities to my total revenue?
  • Can I capitalize on high-demand periods like my competitors and the market?

As mentioned, room rentals are the largest revenue source for hotels in most parts of the world. However, rooms are not the only revenue source, so measuring ADR is important for a comprehensive understanding of total revenue and profitability, along with other revenue-generating departments. This helps to maximize the performance of high-performing departments or identify gaps between occupancy/ADR growth and profitability.