# Understanding Average Daily Rate (ADR): Definition, Calculation, and Examples

![Average Daily Rate (ADR)](https://www.investopedia.com/thmb/IDMMxm55M771GnFJhSZUdXtPMHk=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/adr_definition_primary_1012-3811d045b6c844fb8ecc25f8a44ca063.jpg)

*— Investopedia / Sydney Saporito*

> **Definition**
>
> The average daily rate (ADR) is a key performance metric in the hospitality industry that calculates the average revenue earned per occupied room per day.

## What Is the Average Daily Rate (ADR)?

The average daily rate (ADR) is a metric widely used in the hospitality industry to indicate the average revenue earned for an occupied room on a given day. The average daily rate is one of the [key performance indicators](https://www.investopedia.com/terms/k/kpi.asp) (KPI) of the industry.

Another KPI metric is the [occupancy rate](https://www.investopedia.com/terms/o/occupancy-rate.asp), which when combined with the ADR, comprises [revenue per available room](https://www.investopedia.com/terms/r/revpar.asp) (RevPAR), all of which are used to measure the operating performance of a lodging unit. These figures reflect how effectively a hotel or motel is using its available space to generate revenue.

### Key Takeaways

*   The average daily rate (ADR) measures the average rental revenue for an occupied room per day in the hospitality industry.  
    
*   ADR, combined with occupancy rate, gives insight into a hotel's revenue per available room (RevPAR).  
    
*   Hotels can boost ADR through pricing strategies like upselling and promotions.
*   A rising ADR indicates increased revenue from room rentals.  
    
*   ADR is calculated by dividing total room revenue by the number of rooms sold, excluding complimentary or staff rooms.

## How the Average Daily Rate (ADR) Works

The average daily rate (ADR) shows how much revenue is made per room on average. The higher the ADR, the better. A rising ADR suggests that a hotel is increasing the money it's making from renting out rooms. To increase the ADR, hotels should look into ways to boost price per room.

Hotel operators seek to increase ADR by focusing on pricing strategies. This includes upselling, [cross-sale](https://www.investopedia.com/terms/c/cross-sell.asp) promotions, and complimentary offers such as free shuttle service to the local airport. The overall economy is a big factor in setting prices, with hotels and motels seeking to adjust room rates to match current demand.

To determine the operating performance of a lodging, the ADR can be measured against a hotel's historical ADR to look for trends, such as seasonal impact or how certain promotions performed. It can also be used as a measure of relative performance since the metric can be compared to other hotels that have similar characteristics, such as size, clientele, and location. This helps to accurately price room rentals.

## How to Calculate the Average Daily Rate (ADR)

To calculate the average daily rate, divide the revenue earned from rooms by the number of rooms sold. Complimentary and staff-occupied rooms are excluded.

$\text{Average Daily Rate} = \frac{\text{Rooms Revenue Earned}}{\text{Number of Rooms Sold}}$

### Practical Example of Calculating ADR

 If a hotel earns $50,000 from 500 rooms sold, the ADR is $100. Rooms used in-house, like those for employees or as complimentary, are not counted.

## Real-World ADR Application Example

Consider Marriott International ([MAR](https://www.investopedia.com/markets/quote?tvwidgetsymbol=mar)), a major hotel company that reports ADR with occupancy rate and RevPAR. In 2019, Marriott's ADR rose 2.1% to $202.75 in North America, while the occupancy rate stayed around 75.8%. Multiplying the ADR by the occupancy rate gives RevPAR. For Marriott, this calculation results in a RevPAR of $153.68, a 2.19% increase from 2018.

## Comparing ADR and Revenue Per Available Room (RevPAR)

ADR is essential to calculate RevPAR, as it shows daily revenue per room. ADR helps a lodging company see its per-room income, while RevPAR shows how well rooms are filled at the average rate. If occupancy isn't 100% and RevPAR is below ADR, it may signal that reducing room prices could boost occupancy.

## Limitations and Challenges of Average Daily Rate (ADR)

The ADR does not tell the complete story about a hotel’s revenue. For instance, it does not include the charges a lodging company may charge if a guest does not show up. The figure also does not subtract items such as commissions and rebates offered to customers if there is a problem. A property’s ADR may increase as a result of price increases, however, this provides limited information in isolation. Occupancy could have fallen, leaving overall revenue lower.