What is Average Daily Rate (ADR)?
Average Daily Rate or ADR is a hotel performance metric used in determining the average room rental revenue for the lodging industry. It is a widely used industry standard measurement ideal for comparison against historical, projections, and competitor properties. In general, a higher ADR is better for hotels. However, a higher ADR shouldn't come at the expense of other performance metrics, it is always best to observe ADR along with the occupancy rates and RevPAR indicators to ensure a healthy balance for optimal hotel performance.
Calculate your hotel's ADR for a given period using our free calculator:
Your hotel’s average daily rate is $90 for the period
Average Daily Rate Formula
Average daily rate is a simple but powerful formula. Taking room revenue and dividing it by the number of rooms sold in the defined period.
ADR = Room Revenue / Number of Rooms Sold
When calculating ADR, it is important to remove rooms that were occupied by staff or complimentary rooms provided to guests.
In this example, let's assume a hotel sold 100 rooms and earned $5,000 for that period. We can calculate ADR here:
$5,000 / 100 Rooms = $50
In this case the hotel has an average daily rate of $50 for the period in question.
Why ADR is important?
ADR is important because it provides a snapshot of the property’s performance, this can be used to measure against historical performance. ADR is also a great metric to provide a comparison against a competitor's ADR performance which also have a similar size, location, service, and clientele. When ADR is increasing, it indicates that a hotel is generating more money from renting out hotel rooms. ADR can be a direct reflection of a hotel managers ability to execute on a successful revenue management strategy.
ADR can be powerful when comparing against historical ADR, this will help identify patterns and trends in the data. When observing the trends, it is important to look for seasonal impact, promotional impact, or a direct outcome from a new Revenue Management Strategy.
How to improve ADR
Now that we understand how to calculate ADR and we recognize the importance of tracking it, let's investigate different ways we can improve ADR. It is important to remember that this improvement in ADR shouldn't come at the expense of other metrics.
Many hotel managers can immediately improve ADR by:
Upselling is a great way to immediately increase ADR, whether it is by selling to a guest in advance of their arrival or at the time of check in.
Complementally offers can be important consideration depending on your market, offering free shuttles, free breakfast, or a spa visit can allow for a higher price resulting in a ADR
Revenue Strategy can have a big impact on ADR, by planning in advance for seasonal trends, events, and holidays, being proactive with pricing to maximize ADR.
Longer term strategies that if implemented effectively can also result in an improved ADR. These can take time to implement and for the results to be seen in the metrics, but they are often worth the investment.
- Marketing campaigns can help to boost room rates and drive demand during key periods.
- Social media presence that is both active and authentic is powerful for connecting with past and future guests,
- Hotel Reviews are a major consideration for prospective guests, being active to address negative reviews and also engaging with positive reviews will be beneficial in the long run
- Addressing Problems with the property, staff, or offerings will allow a hotel manager to increase the price of nightly room rental. Properties in poor condition will suffer from negative reviews and command a lower price.
- Staff are the heart and soul of a hospitality project. Looking after staff is the best way to ensure they will look after your guests. Equally important is ensuring your staff are well trained to anticipate guest needs and to delight them throughout their stay.
ADR and other metrics
Using ADR along with other hotel performance metrics can provide valuable insight into a property’s operations. ADR is commonly used alongside Occupancy Rate and RevPAR. As an example, if a hotel manager is aggressively increasing the properties ADR without monitoring the occupancy rate, this can be detrimental to the overall performance of the property, because if the ADR gets too high prospective guests may choose a competitor’s property and the hotels occupancy may be negatively impacted. An optimal goal for hotel managers is to have the best occupancy rate when compared to its competition while maintaining a similar ADR.