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For years, the ADR (Average Daily Rate) has been used to measure hotel performances. What is it, and how do you calculate the ADR?
What is Average Daily Rate?
The ADR is an important KPI within the hotel sector that indicates the average price per night.
Using this figure, possibly in combination with other Key Performance Indicators, goals can be set, and performance can be measured against them.
Benchmarking
In addition to the internal information that the ADR provides, it is valuable to benchmark it. In other words, the ADR can be compared to (nearby) competitors. This shows how a hotel performs relative to other hotels.
ADR is often paired with the occupancy rate. This is termed RevPAR. The latter is often seen as the ideal metric for the success of hotels.
This does not mean that ADR is not valuable; it provides depth in information needed to understand what actions to take for increased revenue.
Calculating a hotel's ADR
The average price per night can be calculated by dividing revenue by the number of booked rooms. This, over a particular period, results in a good metric for comparisons.
Optimal ADR
The ADR is optimal when balanced with the occupancy rate, thereby yielding the highest possible RevPAR. Two statements here are accurate:
- Increasing the ADR may lead to a decrease in occupancy. Conversely, improved occupancy can result in a lower ADR. Good revenue management constantly measures this balance and ensures that the figures remain optimally aligned;
- The ADR should not be a goal in itself; the aim should be to maintain this balance. Furthermore, many external factors and circumstances heavily impact the ADR.
The decision by the Municipality of Amsterdam to stop permitting new hotels, for instance, has significantly increased the ADR on average. Over the past ten years, an average 7% increase in tourism in Amsterdam has been recorded. This increase in combination with limited growth in accommodation (confined to expansions and reconfigurations with increasing capacity) has benefitted hotel owners by providing them with an ever-increasing ADR.
This illustrates that external conditions can lead to impactful changes. This emphasizes the importance of measuring the ADR and benchmarking it.
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