Meaning of Average Daily Rate

The Average Daily Rate (ADR) is one such metric that is prevalently used in the hospitality sector. Across the world, hotel owners use ADR to figure out the average revenue earned in a day for a room that is occupied.

Out of all the others, the average daily rate is one of the Key Performance Indicators (KPI) for this Industry.

Explaining the Average Daily Rate

As mentioned above, ADR showcases the amount of revenue that a hotel has made on average per day. The success from this metric can be figured out from the fact that the higher the ADR, the profitable is the scenario.

Thus, to achieve a higher ADR and increase their revenue, hotels lookout for ways and methods that can increase the price per room. One of the primary ways that help hotel owners to increase their ADR metric is the sheer concentration on pricing strategies.

This comprises complimentary offers, such as providing valet facilities, cab Facility, free Wi-Fi, free lounge access, free breakfast, and more. Apart from this, cross-sale promotions, upselling, etc., are some of the additional factors that help to a great extent.

Also, the overall Economy is a huge Factor in setting up prices as well. To comprehend the operating performance of a hotel, the ADR can be evaluated against the historical ADR performance of the same hotel.

This also gives insight into various trends, like the performance of promotions, seasonal effects, and more. It can also be used as a factor of relevant performance considering that the metric can be compared to other hotels with similar characteristics, like location, clients and size. This helps in accurately pricing the rooms.

How to Calculate the Average Daily Rate?

The metric of Average Daily Rate can be calculated by dividing the average revenue earned by the number of rooms put on rental. Keep in mind that it doesn’t include complimentary rooms and the ones lodged by staff. Thus, the ADR formula is:

Average Daily Rate = (Rooms Revenue Earned)/(Number of Rooms Sold)

Suppose there is a hotel that has generated Rs. 50,000 in revenue from 500 rooms. Now, the ADR will be:

Average Daily Rate = (Rs.50,000)/500 = Rs. 100