How to Calculate ADR
ADR or Average Daily Rate is calculated by dividing the total revenue earned by the host for the entire reservation by the number of booked nights.
As part of our ongoing series exploring short-term vacation rental metrics, this blog post takes a deep dive into Average Daily Rate (ADR). We’ll discuss how it is calculated and how to leverage it whether you’re a vacation rental host, a large-scale property manager, or a seasoned real estate manager.
Average Daily Rate (ADR)
One of the first questions prospective hosts usually ask is, “How much can I charge for my vacation rental?” Pricing is an important topic for hosts, property managers, and real estate investors alike, and ADR is a way to analyze it.
ADR measures the average daily rate paid by the guest during the length of the reservation. It is calculated by dividing the total revenue earned by the host for the entire reservation by the number of booked nights.
At AirDNA, we define revenue as the sum of the nightly rates in the calendar during the days booked, plus the cleaning fee spread across the length of the reservation. The calculation looks like this:
Total Revenue (Daily Rates + Cleaning Fee) / Number of Booked Nights
Example: 5-day reservation
If the daily rate is $200, and a 5-day reservation took place, and the cleaning fee is $100, then the total revenue would be $1,100. The ADR would therefore be $220.
Example: 1-day reservation
If the daily rate is $200, and a 1-day reservation took place, and the cleaning fee is $100, then the total revenue would be $300. The ADR would therefore be $300.
The impacts of pricing strategies, marketing campaigns, and capital improvements can be measured by tracking improvements of a vacation rental’s ADR over time, as well as benchmarking it against the aggregate ADR of similar vacation rentals in the area.
Although ADR provides valuable insight, it is not a sufficient indicator of overall performance and should not be managed in isolation. Take, for example, a vacation rental whose ADR increased month-over-month but occupancy dropped, resulting in lower total revenue.
For those looking to maximize vacation rental revenue, pricing should be proactively managed in accordance with fluctuating demand across several vacation rental metrics.
In AirDNA’s MarketMinder product, market seasonality and booking lead time indicators help property managers and hosts set more intuitive pricing by providing historical market RevPAR and future market demand. Managing and analyzing ADR within the context of occupancy is the best approach for those seeking to gain an edge over the competition.
AirDNA’s methodology and accuracy
At AirDNA, our mission is to be the most-trusted global provider of diversified private accommodation data.
With our combined years of industry experience, we have developed methods for calculating vacation rental ADR and RevPAR that best reflect their intended use and what’s actually happening in the marketplace.
Independent analysis has consistently shown the accuracy of AirDNA’s data to be unparalleled. Global real estate services and investment firm, CBRE, relies on our vacation rental data and has consistently found AirDNA’s margin of error to be less than two per cent. Through hundreds of data partnerships, we continue to refine and strengthen the data made available to our clients through our suite of online products and reporting tools.