Average Daily Rate (commonly referred to as ADR) is a statistical unit that are often used in the lodging industry. The number represents the average rental income per paid occupied room in a given time period. ADR along with the property's occupancy are the foundations for the property's financial performance. The ADR can be calculated by dividing the room revenue by the number of rooms sold.
ADR is one of the commonly used financial indicators in hotel industry to measure how well a hotel performs compared to its competitors and itself (year over year). It is common in the hotel industry for the ADR to gradually increase year over year bringing in more revenue. However, ADR itself is not enough to measure the performance of the hotel. One should combine ADR, occupancy and RevPAR (revenue per available room) to make a sound judgment on hotel performance. Recently, some hotels have adopted a new concept called BAR in addition to ADR.
Average Daily Rate formula is rooms revenue earned divided by number of rooms that earned revenue. House use and complimentary rooms are excluded from the denominators.
However, many hotels calculate ADR or ARR (Average Room Rate) using the formula: Room Income/(No. of rooms sold + Complimentary rooms) i.e. 'House Use' rooms are excluded. The logic for including complimentary rooms is that they are given for business reasons e.g. x rooms complimentary over y paid rooms as part of a business deal. This implies that the inclusion of this free unit is actually an inclusion in the revenue deal. 'House Use' rooms or those occupied by hotel employees or management are excluded as they are not available for sale and not generating income.
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