ADR for Hotels: Average Daily Rate in Hotel Finance
ADR, or average daily rate, is a major metric used to determine the profitability of a hotel property. Average daily rate is calculated by dividing the amount of revenue earned divided by the number of rooms a hotel has sold.
Commercial Mortgage Quick Reference Guide
ADR: Average Daily Rate
ADR, or average daily rate, is a major metric used to determine the profitability of a hotel property. Average daily rate is calculated by dividing the amount of revenue earned divided by the number of rooms a hotel has sold. ADR does not include rooms that are vacant or are being used for free by hotel staff. In addition, ADR does not include rebates or any discounts made for customer service purposes (i.e. discounts for unsatisfied customers). For example, if a hotel makes $100,000 over a one-day period and rents 300 rooms, it would have an ADR of around $333 per room ($100,000/300 = $333.33).
How Hotels Can Utilize ADR
Overall, it’s a good sign for the profitability of a hotel if ADR is steadily rising, as long as the property’s occupancy rate is staying steady or rising as well. If ADR is consistently rising, but occupancy has been falling, a hotel’s rooms may be overpriced, or there may be other business issues to address. When hotels are determining how to adjust the price of their rooms, they can also use the ADR of similar properties in the same market in order to help figure out their pricing strategy.
ADR vs. RevPar (Revenue Per Available Room)
ADR is often compared with a similar metric, RevPar (Revenue Per Available Room), which is closely related. In fact, RevPar can easily be calculated by taking the ADR of a hotel property and multiplying it by the hotel’s current occupancy rate. If, in the example above, the property had an occupancy rate of 75%, the RevPar would be $250 ($333.33 * 0.75 = $250). In many cases, RevPar can be a more accurate measure of profitability, since it factors in the occupancy level of the property.
In general, ADR can be more closely compared to ARR (Average Room Rate), which can be the exact same as ADR if applied to a one-day period. Unlike ADR, however, ARR can be extended to a longer period of time, such as several days, a month, or a year.
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