The Average Rate Index (ARI) is a property management performance metric that compares Average Daily Rate (ADR) with the property’s competitive set for a given period of time. A property’s competitive set includes other brands and competitors with a similar target market.
The competitive set (comp set) is obtained by calculating the Average Daily Rate (ADR) for a group of competitors. If a property’s ADR is equal to the aggregate ADR of its competition, it is historically believed that the property is achieving “fair share.”
What is Average Rate Index For?
Calculating Average Rate Index helps a property compare its rates with competitor’s rates. These comparisons help them make decisions to lower, raise, or hold room rates for selected periods. An ARI greater than 1 indicates that rates are higher than the competition on average. An ARI lower than 1 suggests that rates are lower than the competition on average.
Benefits of Average Rate Index
Knowing ARI helps a property decide when to adjust rates to achieve higher or lower occupancy rates and/or maximize booking revenue. For instance, a property might decide that lowering rates will help increase occupancy and overall revenue or a given period. Similarly, ARI might also indicate that the best strategy for a period is to raise rates and achieve higher revenue even if occupancy falls for that period.
How is Average Rate Index Calculated
Average Rate Index is calculated by comparing a property’s Average Daily Rate (ADR) against a range of competing properties. An ADR for these competing properties must be calculated before dividing a property’s ADR by the ADR for all competing properties. Some properties multiply the resulting calculation by 100 to achieve the final ARI. In that case, 100 signals that a property’s ADR is equal to the average ADR of competition. Higher than 100 signals that ADR is higher than competition on average and lower than 100 signals that ADR is lower than competition on average.
Example of Average Rate Index Calculation
Property ADR = $150
Aggregate Competitor ADR = $120
ARI = $150 (Property ADR) / $120 (Aggregate ADR of Competition) = 1.25
This calculation suggests that a property’s ADR is 25% higher (on average) than the competition.