Average Room Rate (ARR) is a hotel KPI that measures the average rate of an available room. As opposed to Average Daily Rate (ADR) which measures what rate a room might earn on any given day, ARR measures the average rate of rooms available over a longer period of time. It can be calculated for monthly, quarterly, or annual averages. It can also be thought of as the average price that a guest pays per room at a hotel. Accordingly, ARR is an important metric for measuring the financial performance of a property.
What is Average Room Rate Used For?
The purpose of calculating ARR in hotel revenue management is to compare room revenue generated for a specific period against room revenue paid by guests during that same period. It is also used to compare against how many rooms were actually occupied during that time so that hotels can better understand revenue generated versus costs of operation.
Benefits of Average Room Rate
Calculating ARR for longer periods allows revenue managers to track long-term rate trends. This allows hotels to optimize their future pricing and maximize hotel revenue. This is helpful during peak and low seasons when hotels are planning seasonal campaigns and promotional packages.
Limitations of Average Room Rate
Average room rate does not account for costs of operation. Pricing decisions made solely based on ARR will not account for the daily costs associated with operating the room and property as a whole.
How is Average Room Rate Calculated
ARR is calculated by dividing total room revenue by the number of rooms sold (or occupied).
Example of ARR Calculation
Total Room Revenue (for selected time period) = $2,000,000
Total Number of Rooms Sold/Occupied (for selected time period) = 6,000
ARR = $2,000,000 (Total Room Revenue) / 6,000 (Total # Rooms Sold) = $333.33