What Is Average Daily Rate (ADR)?
Defining Average Daily Rate (ADR)
Average Daily Rate (ADR) is the measured value of how much revenue a given hotel has made for a paid rented room per day. It is calculated by dividing the total revenue made in a day by the number of rooms that were occupied on that same day. While ADR as a value is designed to calculate the average rate in a single day, this calculation could apply to any specific period of time, as long as both the total revenue value and the total number of rooms value used in the calculation are from the same given time period.
ADR = Total revenue earned by occupied rooms ÷ Total number of rooms occupied
Who Uses ADR?
ADR is crucial when monitoring your expenses in the hospitality industry. Because ADR is a calculation of a hotel’s net revenue from occupied rooms, this value would be useful to anyone in charge of the hotel and/or its finances, as well as those who use these finances to determine the main courses of action regarding the hotel’s construction and operations. For example, a hotel’s potential ADR is a measurement that developers must keep in mind when viewing possible sites for a new hotel. If the price to build a hotel were to be too high for the ADR in a particular market, the developer would feel inclined to pursue other sites where a positive net revenue is likely.
Management might also use ADR in their future projections for their hotel. A yearly goal ADR value might be established in a 10-year projection for the hotel to set checkpoints for the hotel’s growth and success in bringing in revenue.
Why Is Knowing a Hotel’s ADR Useful?
Besides using ADR to determine the ideal location for and construction of a potential hotel, ADR can also be compared to the costs of acquiring customers in a hotel to evaluate how successful marketing has been for the property and/or company. When viewing a hotel’s marketing costs per occupied room (CPOR) as a percentage of its ADR, for example, marketers can determine if their campaigns have actually contributed to acquiring customers or not. If the marketing is productive, a given hotel’s CPOR should decrease in relation to its ADR over time.
