What ADR means
ADR answers a simple question: when a hotel did sell a room, what did it get for it on average? CoStar defines it as room revenue divided by rooms sold, and the HSMAI glossary gives the same calculation on a daily basis. The figure works in any currency, so a hotel in Riyadh reports it in riyals and one in London in pounds.
Only revenue from renting guestrooms counts. Breakfast, minibar, spa and meeting room income are left out. CoStar notes that, under the Uniform System of Accounts for the Lodging Industry, complimentary rooms are also excluded from rooms sold unless they are occupied as part of a promotion or contract.
ADR is driven by the hotel's mix of rate plans and channels. A night dominated by discounted corporate, group or wholesale rates will show a lower ADR than one filled with direct bookings at the best available rate, even if the hotel is equally full.
Because ADR is based on rooms sold, it ignores empty rooms. A hotel can push ADR up by refusing discounts and leaving rooms unsold. That is why ADR is always read with occupancy, and why RevPAR, which equals ADR multiplied by occupancy, is used as the combined measure.
How ADR works
ADR is calculated from the property management system's daily figures and then rolled up into weekly, monthly or annual results.
- Total room revenueAdd up revenue from guestroom rentals for the period, excluding food, beverage and other income.
- Count rooms soldCount the room nights sold in the same period. Complimentary rooms are normally left out unless they are part of a promotion or contract.
- DivideRoom revenue divided by rooms sold gives ADR for that period.
- Segment the resultRevenue managers often break ADR down by channel, market segment or rate plan to see which business is pulling the average up or down.
- Read it with occupancyADR is compared with occupancy and RevPAR so that a higher rate is not mistaken for better performance when rooms are going unsold.
ADR in practice
Illustrative example: a 120-room hotel in Istanbul sells 100 rooms on a Saturday night. Room revenue is EUR 13,500, made up of:
- 40 direct bookings at EUR 160 = EUR 6,400
- 35 OTA bookings at EUR 140 = EUR 4,900
- 25 tour operator rooms at EUR 88 = EUR 2,200
ADR = 13,500 ÷ 100 = EUR 135. Occupancy is 100 ÷ 120, or about 83%, so RevPAR is about EUR 112.50. If the hotel had refused the tour operator business and sold only the 75 higher-rated rooms, ADR would rise to about EUR 151, but room revenue would fall to EUR 11,300 and RevPAR would drop to about EUR 94. All figures are invented to show the calculation.
Who uses it
Advantages and limitations
Advantages
- Simple to calculate and understand, which makes it useful for daily reporting.
- Shows clearly whether the hotel is holding its price or relying on discounts.
- Can be split by channel, segment or rate plan to show where the hotel's revenue quality is strong or weak.
- Uses a widely shared definition, so it can be benchmarked against competitive sets.
Limitations
- Ignores unsold rooms, so a high ADR can hide poor occupancy.
- Excludes non-room revenue, which can be a large part of income at resorts and full-service hotels.
- Does not reflect distribution costs, so two bookings with the same rate can contribute very different net revenue.
- An average can hide big swings between weekdays, weekends, seasons and room types.
Frequently asked questions about ADR
How do you calculate ADR for a hotel?
Divide total room revenue for the period by the number of room nights sold in the same period. For example, EUR 20,000 of room revenue from 160 rooms sold gives an ADR of EUR 125. Leave out non-room income and, normally, complimentary rooms.
Does ADR include taxes and breakfast?
Room revenue used for ADR normally excludes taxes collected for the government, and income from food and drink is reported separately. When breakfast is bundled into a package rate, hotels usually split out the food portion under their accounting rules, so practice can differ between properties.
Why can ADR go up while revenue goes down?
ADR only looks at rooms that were sold. If a hotel turns away lower-rated business, the average price of the remaining rooms rises, but fewer rooms are sold and total revenue can fall. Checking RevPAR or total room revenue alongside ADR shows whether a rate increase actually paid off.
What is the difference between ADR and the rack rate?
The rack rate is a hotel's published standard price for a room type before discounts. ADR is the average actually achieved across all rooms sold, after corporate, package, wholesale and promotional rates are taken into account, so it is usually well below the rack rate.
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