Average room rate (ADR): what it means and how to work it out

1. 1Choose the period: one night, a week or a month.
2. 2Add up the room revenue for that period: what guests paid for rooms, without tax, without breakfast or other extras, and after any booking site's commission only if you always count it that way.
3. 3Count the rooms sold in the same period. A room sold for three nights counts three times.
4. 4Divide the room revenue by the rooms sold.

• Leave out tax, so one month compares with another when the tax changes.
• Leave out breakfast, meals and other extras, unless a package's price can't be split.
• Leave out rooms given free (to staff, or as a complaint's apology), or count them at zero and say so: either way, do it the same every month.
• Decide whether you count prices before or after booking sites' commission, and keep to it. Before is the more usual, and after shows what you keep.

Three figures describe a month of room sales, and each needs the other two. Average room rate is what a sold room brought in. Occupancy is the share of rooms that were sold. RevPAR, revenue per available room, is the room revenue spread over every room there was to sell, sold or not, so it is average room rate times occupancy.

So when your average room rate rises, look at RevPAR before you celebrate, and when it falls, look at whether you sold more rooms because of it.

One figure for the whole hotel hides most of what you can act on. The same sum, done for a part of your sales, tells you where the money comes from:

• By room type: your best rooms should earn a clearly higher rate. If a suite earns little more than a standard room, its price or its photos are not doing their job.
• By booking site: the rate each site brings, before and after its commission. A site that fills rooms at a low rate may cost more than it earns.
• By your own website against the booking sites: guests who book direct often pay a similar price, and you keep the commission.
• By night of the week: weekend and weekday nights usually sell at different rates, and should be priced differently.
• By season and by event: the nights of a festival, a wedding season or a long weekend, set against the same nights last year.

A higher average room rate is not always better. Raise your prices and fewer rooms may sell: the rate goes up while the money goes down. That is why hotels read it beside occupancy, the share of rooms sold, and beside revenue per available room, which counts the empty rooms too.

Compare it with your own past months, and with the same nights last year, before you compare it with another hotel's. A hotel down the road with a higher rate may have bigger rooms, a pool or a better place on the booking sites.

• Price each night by how busy your town will be, not one price all year: festivals, weddings and long weekends fill rooms at higher prices.
• Check what the hotels around you charge for the same nights before you set yours.
• Make sure the booking sites aren't selling your room for less than your own website, which pulls your average down for no reason.
• Sell the better rooms first to guests who will pay for them, with photos that show the difference.