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Average Daily Rate (ADR): Definition, Calculation, Examples

Learn the definition, calculation, and examples of Average Daily Rate (ADR) in finance. Understand how ADR contributes to financial analysis and decision-making.

What is Average Daily Rate (ADR)?

When it comes to understanding the financial health of a business in the hospitality industry, Average Daily Rate (ADR) is an important metric to consider. ADR refers to the average rate at which a hotel or other accommodation establishment charges per room night, regardless of whether that room is actually occupied or not.

So, how is ADR calculated? The formula is simple: divide the total room revenue by the number of rooms sold or occupied during a particular time period. For example, if a hotel generated \$10,000 in room revenue over the course of a month and sold 200 rooms, the ADR would be \$50.

Key Takeaways:

• ADR is a measure of the average rate charged per room night by a hotel or accommodation establishment.
• It is calculated by dividing the total room revenue by the number of rooms sold or occupied during a specific time period.

Now that we understand what ADR is and how it is calculated, let’s dive deeper into why it is an important metric for businesses in the hospitality industry. Here are a few key reasons:

1. Measure of Pricing Strategy and Performance

ADR provides valuable insights into a business’s pricing strategy and performance. By analyzing ADR over time, hoteliers can determine whether they are charging the right amount for their rooms. If ADR is consistently low, it may indicate that the hotel is undercharging or not effectively monetizing their offerings. On the other hand, a consistently high ADR may suggest that the hotel is overpricing their rooms, which can result in lower occupancy rates.