Average daily rate definition
/What is the Average Daily Rate?
The average daily rate is the average revenue generated by an occupied hotel room. It is one of the primarily indicators of performance used within the lodging industry. A generally increasing average daily rate is a strong indicator that a hotel is finding ways to charge more for its rooms, which in turn results in greater overall profitability. This can be achieved by up-selling customers on more expensive rooms, as well as by cross-selling other services to them.
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How to Calculate the Average Daily Rate
To calculate the average daily rate, divide the total room revenue earned by the number of rooms sold. The formula is as follows:
Total room revenue earned / Number of rooms sold = Average daily rate
For example, a hotel earns $10,400 from its 130 rooms, which equals an average daily room rate of $80.
Rooms that have been set aside for internal use, such as rooms being used by employees, are not included in the calculation.
Variations in the Average Daily Rate
The average daily rate can fluctuate based on seasonality. For example, a winter ski resort charges much higher rates when the mountain is open for skiers, lower rates during the spring and fall, and higher rates during the summer months. The rate can also vary substantially based on the state of the overall economy, since this drives the propensity of customers to pay for more expensive hotel rooms. Also, the introduction of more hotel capacity nearby can drive down the average daily rate for its competitors, until demand grows enough to meet the increased supply.