What is average daily rate (ADR)?
Average daily rate, commonly referred as ADR, is a metric utilized in the hotel industry to measure the average price customers are paying per room per night on a given period of time.
How is average daily rate (ADR) Calculated?
Average daily rate is calculated by dividing room revenue by the total rooms sold on a given period of time:
- Room revenue in January: 260,400
- Rooms sold in January: 2,480
- Average daily rate in January: 105 (260,400 / 2,480)
Why is average daily rate important?
Average daily rate (ADR) is an important indicator because it reflects the average price that customers are paying for hotel rooms on a given period of time. This metric has a direct impact in a hotel´s revenue. However, ADR should never be analyzed in isolation. A common mistake in hotel management is to associate a high ADR with good performance. This can lead to incorrect decision making when setting prices. A hotel can have a high ADR, but if that may not be beneficial if it leads to a very low occupancy levels. The secret is to find the level of occupancy and ADR that maximizes the hotel profitability. See RevPar definition.