The Average Daily Rate (ADR) is one of the most important key performance indicators in the hotel industry. Together with RevPar (revenue per available room), occupancy and turnover, the Average Daily Rate is one of the basic metrics in revenue management.
Content
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- Explanation – How to calculate your ADR
- Dynamic pricing
- Procedure for ADR calculation
- ADR Index
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The Average Daily Rate describes the average revenue per paid occupied room in a given period.
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Explanation – How to calculate your ADR
With the ADR you can measure your performance, how your hotel has developed over a defined period of time. It also serves as a comparison with other hotels. However, you should be careful in a direct comparison with other hotels. The average daily rate does not take into account the hotel’s occupancy rate. For a competitive comparison, the RevPar or the TRevPar is better suited. If you want to make an economic comparison, you should look at the ARPAR.
For example, a hotel with 5 exclusive rooms could have a rate of 150 €. In contrast, a hotel with 100 rooms would only have an Average Daily Rate of 70 €. However, the hotel with 100 rooms is more likely to have a higher gross profit and profit.
An increasing rate indicates that a hotel is generating more revenue by renting out rooms. You can increase the rate for example by upselling or cross-selling promotions. Another problem is that no-show fees are included. Thus, a hotel can have higher sales on one day, but these are not included in the calculation.
Dynamic pricing
By looking at the average daily rate, you can see the evolution of dynamic prices. In the past, there were often seasonal prices or annual prices. The Average Daily Rate hardly changed as a result and was constantly the same. However, as soon as a hotel works with dynamic pricing, conclusions about demand can be drawn from the high and low points of the ADR. A high ADR means that the market had high demand early on. You can adjust the price accordingly. A low ADR means that demand was weaker than expected and the price was lowered. Thus, the Average Daily Rate plays a big role in yield management and price optimisation.
Procedure for ADR calculation
You add up the prices of all overnight stays for the respective day and divide this value by the number of overnight stays.
This value can be considered a good benchmark for the development of the average daily rate in the hotel for future rates. To make an economic forecast, the ARPA should be preferred. The ARPA considers additional sales and revenues from F&B, spa treatments, banquet and other sales. Furthermore, variable costs are deducted so that a comparison can be made from a business perspective. With all KPIs, however, it should be noted that advertising costs or commission payments are often not considered. Commission payments to booking.com, hrs, expedia etc. reduce the turnover of the bookings.
Example
Via booking.com 15 rooms were booked at a price of 100 €. The rooms sold via the own website were € 90 and were sold 20 times.
This results in a turnover of 1,500 € and 1,800 €. The total turnover on this day was € 3,300.
Now the total turnover has to be divided by the number of rooms sold: 3,300 € / 35 rooms = 94.30 €.
The average rate on this day was € 94.30.
ADR Index
The index compares the own ADR with that of the competitor.
ADR Index = ADR / ADR Competitor x 100
Example
The own hotel has an Average Daily Rate of 100 €, the average rate of the competitors is 90 €.
100 € / 90 € x 100= 111,11
This means that the hotel has a higher ADR than the competitors.