Average room rate is calculated by dividing your total room revenue by the number of rooms sold. If your hotel generated $75,000 in room revenue and sold 250 rooms during a given month, your average room rate is $300. The metric, often called ARR or ADR (average daily rate), tells you how much each occupied room earns on average and serves as a foundation for pricing decisions across the hospitality industry.
The Basic Formula
The calculation itself is straightforward:
Average Room Rate = Total Room Revenue ÷ Number of Rooms Sold
Total room revenue means only the money collected from selling rooms. It does not include revenue from your restaurant, bar, spa, parking, or other ancillary services. You can run this formula for a single night, a week, a month, a quarter, or an entire year, depending on the time frame you want to evaluate.
A quick example: a 100-room hotel sells 70 rooms on a Tuesday night and collects $8,400 in room revenue. The average room rate for that night is $8,400 ÷ 70 = $120.
Which Rooms to Exclude
Complimentary rooms and staff-occupied rooms are excluded from both sides of the formula. They generate no revenue, so including them in the denominator would artificially drag down your rate. If you gave away 3 comp rooms on Tuesday, you would not count those 3 in the 70 rooms sold, and whatever $0 they brought in would not appear in revenue.
Out-of-order rooms (those closed for maintenance or renovation) also sit outside the calculation. They are not available for sale, so they should not inflate the denominator. The goal is to measure what guests actually paid for the rooms they actually booked.
Net Average Room Rate
The standard formula gives you a gross figure. It does not account for the costs you paid to acquire each booking. A room sold through an online travel agency at $200 per night may carry a 15% to 25% commission, meaning you keep only $150 to $170 after the platform takes its cut.
To see what you actually retain, calculate the net room rate:
Net Room Rate = Standard ADR − All Distribution-Related Selling Costs
Those selling costs include OTA commissions, global distribution system (GDS) fees, credit card transaction fees, franchise fees, and any other charges tied to the channel that produced the booking. A direct booking through your own website might carry only a small payment processing fee, while a booking through a third-party platform could cost significantly more.
You can then measure how efficiently each booking channel performs by calculating net ADR yield: divide the net room rate by the standard ADR. If your standard ADR is $200 and your net room rate after commissions is $160, your net ADR yield is 80%. Running this comparison across channels helps you see which ones deliver the most revenue per dollar of distribution cost.
How ARR Differs from RevPAR
Average room rate tells you how much each sold room earned. It says nothing about the rooms that went unsold. A hotel could post an impressive $250 ARR while leaving half its inventory empty, which is not a sign of strong performance.
RevPAR (revenue per available room) fills that gap. You calculate it by dividing total room revenue by the total number of available rooms, or by multiplying your ARR by your occupancy rate. If your ARR is $250 and your occupancy rate is 60%, your RevPAR is $150. That single number captures both pricing power and how well you fill the building.
Neither metric includes non-room revenue or operating costs, so neither one measures profitability on its own. But used together, they give you a clearer picture than either provides alone. A rising ARR paired with a falling occupancy rate, for instance, might signal that your prices are pushing guests away. A rising occupancy rate with a declining ARR could mean you are filling rooms by discounting too aggressively.
Putting the Number to Work
Calculating your average room rate once is useful. Tracking it over time is where the real value lies. Compare your ARR week over week, month over month, and year over year to spot seasonal patterns, measure the impact of rate changes, and evaluate promotions. If you raised rates 5% last quarter but your ARR only moved 2%, heavy discounting or package deals may be eroding the increase.
Benchmarking against competitors adds another layer. Industry data providers publish aggregate ADR figures by market and property class, letting you see whether your pricing sits above, below, or in line with comparable hotels. A consistently lower ARR might indicate room for a rate increase, while a significantly higher one could explain a lagging occupancy rate.
Segmenting the calculation sharpens your insights further. Run the formula separately for room types (standard, suite, premium), booking channels (direct, OTA, corporate), and guest segments (leisure, business, group). You may find that your suites carry a strong average rate but your standard rooms are underpriced, or that corporate bookings deliver a lower rate than leisure guests during peak season. Those details drive smarter pricing decisions than a single property-wide number ever could.