The average daily rate (ADR) shows how much revenue is earned per room on average. The higher the ADR, the better is the profit. A rising ADR shows that a hotel is increasing the profit it’s making from renting out rooms. To increase the ADR, hotels should look into reasonable ways to boost price per room.
Hotel operators look up to increase ADR by focusing on pricing strategies. This includes upselling, cross-sale promotions, and complimentary offers such as free cab service to the local airport. The overall economy is a big factor in setting prices, with hotels and motels looking up to adjust room prices to match current demand.
To determine the operating performance of a hotel or motel, the ADR can be measured against a hotel’s historical ADR to look for trends, such as seasonal impact or how certain promotions can be performed. It can also be used as a measurement of relative performance since the results can be compared to other hotels that have similar characteristics, such as size, client rate, and location. This helps to give a definite priced room rentals.
Calculating the Average Daily Rate (ADR)
The average daily rate is calculated by taking the average revenue earned from the rooms and dividing it by the number of rooms sold. It excludes complimentary rooms and rooms occupied by staff.
ADR = ROOM REVENUE / ROOMS SOLD