Metrics that Matter #5: Average Daily Rate
Welcome to Metrics that Matter - our deep dive into the KPIs that power senior living. All of these KPIs are automatically calculated by Clarent and included in our KPI Library.
For this week's "Metrics that Matter" I wanted to share an article from SHN.
KPI: Average Daily Rate (ADR)
What is Average Daily Rate?
Actual ADR is the daily average of all revenue streams charged from residents during the time period. Rates can depend on many things: what's included (i.e. laundry? food?) as well as care level or if a second resident is present.
How do you calculate Average Daily Rate?
Actual ADR is calculated by adding up all revenue streams for all residents during the time period and dividing it by the number of occupied units.
Why is this an important KPI?
ADR is useful in several ways. You can measure price increases over time and compare actual vs. budget to understand if you are able to charge the rate you assumed you were able to during your budget process.
The difference between actual ADR and budgeted ADR often reveals concessions: discounts offered by sales people to get a move-in. This is a hotly debated topic: do you achieve occupancy by discounting, or hold firm on rates (even if that means fewer move-ins)? Either way, it's essential to make the decision with full context as it's very difficult to raise rates after move-in, so if you discount heavily you may be setting up a revenue challenge in future!
As Greg notes in the article, it's essential to “set the market rates correctly” while using concessions as a closing tool “when necessary.”
If you're not setting market rates correctly or overly relying on concessions, you'll see a large difference between actual and budgeted ADR.
Why is this KPI hard to measure?
ADR is the sum of all streams of revenue. Each operator structures rate differently, so you need to include rent rolls as well as a custom set of GL codes to get the full picture of ADR.
How we do it at Clarent & suggested next steps
Our software can be customized to include any set of GL codes in ADR. We can also show the essential context of occupancy, move-ins, and more to ensure you're making decisions about ADR with all the information needed!
Average Daily Rate helps you understand the tradeoff: Do you achieve occupancy by discounting, or hold firm on rates (even if that means fewer move-ins)?