Calculate revenue potential

What is the Average Daily Rate (ADR)?

ADR tells you what one sold room earned, on average, across a period. It is the plainest read you have on your pricing.

It counts rooms, and only rooms that someone paid for. Breakfast, bar, spa and parking sit outside it. So do complimentary rooms and staff rooms, because nobody paid for those. Leave them in and your average drops for a reason that has nothing to do with how you priced.

Most hoteliers can quote their ADR from memory. Far fewer can say whether it is the right one.

ADR formula

Total room revenue ÷ Number of rooms sold

Take a 40-room hotel over a 30-day month. It sold 780 room nights and took $109,200 in room revenue.

$109,200 ÷ 780 = $140

Your average guest paid $140 a night.

One thing to watch. You divide by rooms sold, not by rooms you own. Divide by rooms you own and you have calculated RevPAR instead, which is a different number answering a different question.

How to calculate your property's monthly and yearly ADR?

The formula does not change. Only the window does. Add up room revenue for the month and divide by rooms sold that month. Do the same across twelve months for the year.

One month on its own is a report. Twelve months side by side is a pattern, and the pattern is where the money is. Compare each month against the same month last year rather than against the month before it, so your seasonality does not read as a problem.

The version worth building is ADR by channel. Your direct guests, your OTA guests and your corporate accounts almost never pay the same rate. Until you can see those three numbers separately, you are negotiating your contracts blind.

Why is your average daily rate important?

ADR is the fastest signal you have that something in your pricing has moved. Read it next to your occupancy and it tells you what to do.

Your ADR rose and your occupancy fell. You priced ahead of your demand. Check RevPAR before you react. If RevPAR still grew, hold your nerve and hold the rate. If it did not, you pushed too hard on the wrong nights.

Your ADR is flat and you sell out most nights. You are underpriced. A full hotel is not a win if it fills at your floor rate. Lift your cheapest rate on your three busiest days and watch what occupancy actually does. It usually moves less than you fear.

Your ADR and your occupancy both fell. This is not a pricing problem. Fewer people are seeing you. Look at your channel mix and your direct bookings before you touch a single rate.

What ADR cannot tell you is whether you sold enough rooms at that price. A $200 ADR at 30% occupancy loses to a $140 ADR at 65%. ADR flatters a half-empty hotel, which is why owners ask for RevPAR.

4 strategies to improve your property's ADR

Every one of these moves the rate without asking your team to work a longer day.

1. Price the night, not the season

A Friday in a festival week and a Tuesday in February are not the same product. Most hotels still price them as though they were. Set your rates by day, and let your busiest dates carry a rate your quiet ones never could.

2. Fence your lowest rate

Your cheapest rate exists to fill quiet nights. Attach a minimum stay, an advance purchase window or a non-refundable condition to it. Now it stops turning up on the nights you were going to sell anyway.

3. Sell up at the front desk

Your team sees the guest before the guest sees the room. A $20 upgrade offered at check-in, taken by one guest in five, moves your ADR faster than any campaign you could run. Give the front desk a script and a reason to use it.

4. Know which channel brings your best rate

Some channels deliver guests who book a better room and stay longer. Others deliver your lowest rate and take a commission on top. Once you can see ADR by channel, you know which relationships to grow and which to cap.