As a hotelier, understanding the key performance indicators (KPIs) that drive your business success is crucial. Two of the most important metrics to track are average daily rate (ADR) and revenue per available room (RevPAR). Though they may sound similar on the surface, ADR and RevPAR measure different aspects of your hotel’s financial performance.
In this comprehensive guide, we’ll demystify the difference between ADR vs RevPAR and how to use both metrics to optimize hotel revenue.
What is Average Daily Rate (ADR)?
Average daily rate commonly referred to as ADR measures the average rental income per paid occupied room per day. Essentially, it tells you the average rate at which you rented hotel rooms on any given day.
To calculate ADR, you divide total room revenue by the number of rooms sold for a certain time period The formula is
ADR = Total Room Revenue / Number of Rooms SoldLet’s break this down with an example:
- On Tuesday, your hotel had 100 rooms occupied.
- The total revenue from room sales was $7,500.
- To find the ADR, divide the $7,500 in revenue by the 100 rooms sold.
- This gives you an ADR of $75 for Tuesday.
Monitoring ADR helps hoteliers identify room rate patterns and trends over time. You can calculate ADR daily, weekly, monthly or for any other time period that makes sense for your analysis. Comparing ADR across different periods gives insight into the effectiveness of room rate strategies.
Here are some of the key benefits of tracking ADR:
- Identifies room rate fluctuations based on seasonal or market demand
- Helps set optimal room rates to maximize revenue
- Enables pricing adjustments when ADR drops below targets
- Allows rate benchmarking against competitors
- Indicates when discounts or promotions are needed to stimulate sales
While ADR focuses strictly on realized room revenue, RevPAR takes into account the total rentable rooms, as we’ll explore next.
What is Revenue Per Available Room (RevPAR)?
Revenue Per Available Room (RevPAR) measures the total room revenue generated relative to the total number of rooms available at the hotel. Essentially, it reveals how efficiently you are selling your available rooms.
RevPAR is calculated by multiplying a hotel’s ADR by its occupancy percentage. The formula is:
RevPAR = ADR x Occupancy PercentageLet’s break down the RevPAR calculation with an example:
- On Tuesday, your hotel’s ADR was $75
- Your hotel has 300 total rooms
- Of those 300 rooms, 100 were occupied
- 100 / 300 rooms occupied equals an occupancy rate of 33%
- Multiplying the $75 ADR by 33% occupancy gives you a RevPAR of $25 for Tuesday
Monitoring RevPAR reveals your success at filling rooms. It combines the rental rate earned along with overall occupancy achieved.
Here are some key things RevPAR indicates:
- How well room supply aligns with guest demand
- If room rates are priced properly for max occupancy
- When to increase rates or stimulate sales with promotions
- Success filling rooms during high and low demand periods
- How your occupancy and RevPAR stacks up to competitors
While ADR focuses on the average rate per room, RevPAR reflects the revenue per available room, accounting for both rental rate and occupancy.
ADR vs. RevPAR: What’s the Difference?
Now that we’ve clearly defined both metrics, let’s recap the key differences between ADR and RevPAR:
- ADR measures the average rate per occupied room
- RevPAR measures total revenue across all available rooms
- ADR helps optimize room rates
- RevPAR indicates occupancy efficiency
- ADR ignores vacancies and no-shows
- RevPAR accounts for unsold rooms
- ADR focuses on realized revenue
- RevPAR considers revenue opportunities
Essentially, ADR reveals the average price you collect per booked room, while RevPAR shows total revenue performance against room capacity.
To boost RevPAR, you can increase occupancy, raise ADR, or both. But you need to balance rate and occupancy carefully to truly maximize revenue. Monitoring both metrics together gives hoteliers a complete revenue management picture.
Why Track Both ADR and RevPAR?
Simply put, ADR and RevPAR give hoteliers distinct but interconnected insights into property performance. Used together, they enable data-driven decisions to optimize financial results.
Relying on only one metric can provide misleading perspective. For example:
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High ADR but low RevPAR signals excess rates deterring occupancy.
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High RevPAR but low ADR indicates cheap rates driving volume yet leaving money on the table.
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Improving RevPAR with deep discounts erodes profit margins.
To make sound revenue management decisions, hoteliers need the complete financial relationship that tracking both ADR and RevPAR provides.
How Are ADR and RevPAR Calculated?
Now that we’ve explored the conceptual differences between ADR and RevPAR, let’s look at the mathematical formulas behind calculating each KPI:
Calculating ADR
As we learned earlier, Average Daily Rate is calculated by dividing total room revenue by the number of rooms sold for a given time period:
ADR = Total Room Revenue / Rooms SoldPulling the required data points into the formula looks like this:
ADR = $75,000 total room revenue / 1,000 rooms sold = $75 ADRThis tells us the average rate per occupied room was $75.
Calculating RevPAR
To find RevPAR, you multiply ADR by the occupancy percentage like so:
RevPAR = ADR x Occupancy Percentage Plugging real metrics into the formula:
RevPAR = $75 ADR x 70% occupancy = $52.50 RevPARThis shows a RevPAR of $52.50 based on a $75 ADR and 70% occupancy.
ADR vs. RevPAR Example
Let’s look at a detailed ADR vs RevPAR example to really solidify the differences:
Hotel A
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100 rooms
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70 rooms occupied
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Total room revenue = $4,550
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To find ADR:
- ADR = $4,550 total revenue / 70 rooms sold
- ADR = $65
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With 70 rooms occupied out of 100 total rooms, the occupancy rate is 70%
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To find RevPAR:
- RevPAR = $65 ADR x 70% occupancy
- RevPAR = $45.50
Hotel B
- 100 rooms
- 90 rooms occupied
- Total room revenue = $5,850
- To find ADR:
- ADR = $5,850 total revenue / 90 rooms sold
- ADR = $65
- With 90 rooms occupied out of 100 total, the occupancy rate is 90%
- To find RevPAR:
- RevPAR = $65 ADR x 90% occupancy
- RevPAR = $58.50
Comparing the two hotels shows how higher occupancy translates into better RevPAR, even when ADR is equal. This illustrates why tracking both metrics together gives the complete revenue optimization picture.
How Should Hoteliers Use ADR vs. RevPAR?
Now that you understand the difference between ADR and RevPAR, let’s discuss how savvy hoteliers can apply these metrics together to boost financial performance:
Dynamic Pricing
Analyzing ADR and RevPAR trends enables data-driven room pricing. When demand is high, inch up rates to maximize revenue. During slower periods, reduce rates to stimulate occupancy. This dynamic pricing helps strike the perfect balance between ADR and RevPAR.
Performance Monitoring
Compare your hotel’s current ADR and RevPAR to previous periods and track against revenue goals. This highlights problem areas to address and positive trends to continue.
Competitive Benchmarking
See how your property’s ADR and RevPAR stack up against competing hotels in your market. This indicates where you can raise rates or need promotions to stay competitive on price and occupancy.
Staff Performance
Share ADR and RevPAR performance with staff to showcase positive results driven by excellent guest service. Use missed targets to highlight areas for training and improvement.
Budgeting and Forecasting
Analyze seasonal ADR and RevPAR patterns over recent years. Apply the insights to forecast trends and incorporate into future revenue plans and budgets.
Promotion Planning
When RevPAR falls below target, stimulate demand with strategic promotions. Analyze post-promotion ADR and RevPAR impact to optimize future offers.
Revenue Management Software
A hotel revenue management system automates ADR and RevPAR tracking in real-time. KPI dashboards spotlight trends and opportunities hoteliers may otherwise miss.
ADR vs. RevPAR: The Bottom Line
While ADR and RevPAR both offer valuable insights, their true power comes from analyzing them together. Like two sides of the revenue management coin, ADR and RevPAR
CPOR (Cost per Occupied Room)
What does it show? CPOR is measured by simply dividing gross operating expenses by the number of rooms sold to show how much every sold room costs you. For example, you have 5 rooms occupied and your total operating expenses are $1,700. The CPOR would be $340.Why use it? CPOR is a crucial KPI that allows you to monitor your expenses. It’s often used to calculate the minimum rate per room since you obviously shouldn’t charge less than you spend.Important to understand. Here again different ways of calculation exist as sometimes only room-related costs are considered. In this way, you can find the average variable expenses per room, which is also good to know. However, if you want to define your minimum room rate, we advise including both variable and fixed costs to avoid losses.
NOI (Net Operating Income)
What does it show? An NOI shows whether your property is making a profit or loss. To find it you have to subtract your gross operating expenses from your total revenue. For example, you made $3,500 from room sales, restaurant, and spa. Your gross expenses are $1,700, making that days NOI $1,800. To calculate your weekly, monthly, or yearly NOI, you have to take the corresponding total figures.Why use it? Income is what’s left after you paid your expenses. So, NOI is the KPI that finally defines the bottom line, or absolute financial result of your activity. It’s the most important metric for owners and investors as it clearly shows your property’s ability to generate profit.Important to understand. The NOI is the income before tax and doesn’t consider some groups of expenses such as interest on loans and amortization. In other industries, it’s referred to as EBIT — earnings before interest and taxes.
How do you go about Hotel Occupancy %, ADR and RevPAR Excel Calculation
How is RevPAR calculated?
RevPAR is also calculated by dividing a hotel’s total room revenue by the total number of available rooms in the period being measured. Revenue per available room (RevPAR) is a performance measure used in the hospitality industry. RevPAR is calculated by multiplying a hotel’s average daily room rate by its occupancy rate.
What is revenue per Available Room (RevPAR)?
Revenue per available room (RevPAR) is a reflection of how an establishment’s rate and inventory interact to produce the revenue from its rooms. It’s a metric that a revenue manager can use to measure the performance of a hotel or motel. Lodging management can calculate RevPAR by multiplying its ADR with its rate of occupancy.
What is the difference between average daily rate and RevPAR?
Here are some differences: Calculation: Average daily rate is calculated by dividing the total revenue generated from room sales by the total number of rooms sold during a specific period. Conversely, RevPAR is calculated by multiplying the ADR by the hotel’s occupancy rate.
What if the average room rate is higher than RevPAR?
For example, if the average room rate is higher than the RevPAR, revenue managers can lower the average rate to help the hotel reach full capacity. This metric is not an end-all solution to revenue management.
