# Average Daily Rate (ADR) Defintion

### What is the average daily rate (ADR)?

An average daily rate (ADR) is a metric widely used in the hotel industry to indicate the average room rental performed per day. The average daily rate is one of the main performance indicators (KPI) in the industry.

Other key performance indicators are parameters such as occupancy rate and combined with ADR include income per available room (RevPAR), which are all used to measure the operational performance of a accommodation unit like a hotel or motel.

### The formula for the average daily rate (ADR) is

The

$text {Average daily rate} = frac { text {Room revenue earned}} { text {Number of rooms sold}}$

Average daily rate=Number of rooms soldRoom revenues earnedTheThe

### How to calculate the average daily rate (ADR)?

The average daily rate is calculated by taking the average income generated by the rooms and dividing it by the number of rooms sold. It excludes free rooms and rooms occupied by staff.

### What does the average daily rate (ADR) tell you?

The average daily rate (ADR) indicates the income generated per room. The higher, the better. An increasing ADR suggests that a hotel increases the money it earns by renting rooms. To increase ADR, hotels should look for ways to increase the price per room. ADR can be measured against the historical performance of a hotel. It can also be used as a measure of relative performance, since the measure can be compared to other hotels with similar characteristics such as size, clientele and location.

Hoteliers are looking to increase ADR by focusing on pricing strategies. This includes upselling, cross promotions and free offers such as the free shuttle service to the local airport. The overall economy is an important factor in pricing, hotels and motels seeking to adjust room rates to meet current demand.

### Key points to remember

• The ADR measures the average room rental income achieved per day, making it possible to assess the operational performance of a hotel or other accommodation company.
• ADR can be measured against the historical performance of a hotel and other hotels.
• The ADR multiplied by the occupancy rate is equal to RevPAR.

### Example of using the average daily rate (ADR)

If a hotel has an income of $50,000 and 500 rooms sold, the ADR would be$ 100. Rooms used for internal use, such as those reserved for hotel employees and those free of charge, are excluded from the calculation.

As a concrete example, consider Marriott International (NASDAQ: MAR), a large listed hotel that reports ADR as well as occupancy and RevPAR. Marriott’s ADR for the second quarter of 2020 increased 1.9% to $163.05 in North America. The occupancy rate increased from 0.9% to 78.7%. Taking ADR and multiplying it by the occupancy rate gives the RevPAR. In the case of Marriott,$ 163.05 multiplied by 78.7% equates to a RevPAR of more than \$ 128, up 3.1% from the same quarter last year.

### The difference between the average daily rate (ADR) and the income per available room (RevPAR)

The average daily rate (ADR) is necessary to calculate the RevPAR. The average daily rate tells a hosting company how much they earn on average per room on a given day. Meanwhile, RevPAR measures the average rate that the hosting company gets for its available rooms. The RevPAR does not take into account the size of the hotel and does not mean that the profits of the hotel are increasing. However, ADR can be a better measure of profitability, showing whether hotel rates are going up or not.

### Limits on the use of the average daily rate (ADR)

The ADR does not tell the complete story of a hotel’s revenues. For example, it does not include the fees that a hosting company may charge if a customer does not show up. The figure also does not subtract items such as commissions and discounts offered to customers in the event of a problem. The ADR of a property can increase due to higher prices. However, this provides limited information in isolation. Occupancy could have decreased, leaving overall revenues lower.