As hotel revenue managers, few metrics make us lean forward like ARI. Short for Average Rate Index, ARI provides an at-a-glance view of your property's rate positioning relative to competitors. It precisely illuminates where you stand on ADR.
However, if you're new to revenue management, ARI can also seem abstract and confusing. What exactly does this index measure? How is ARI calculated, and what does it signify? How should you interpret and apply ARI in your hotel pricing strategy?
This article will provide an in-depth look at ARI—from basic definitions to practical applications. You'll gain the knowledge needed to decipher ARI, harness its insights, and utilize it to drive pricing decisions. Let's shed light on this critical hotel performance metric.
Key Takeaways
- ARI measures your hotel's ADR compared to a competitive set
- An ARI above 100 means your rates are higher than competitors' average rate
- ARI is used to gauge rate positioning and inform pricing strategy
- Monitor ARI trends over time to identify needs for adjustment
- Partner with revenue experts to optimize the use of ARI analysis
What is ARI: The Fundamental Hotel Metric
To understand ARI, let's start with a simple definition. ARI stands for Average Rate Index. As the name implies, it is an index measuring your hotel's average daily rate compared to a group of identified competitors.
Specifically, ARI looks at your ADR for a certain period and divides it by the aggregate average ADR of your comp set over the same period. The result is your ARI score, stated as a percentage.
For example, if your ADR is $150 and your competitors' average ADR is $125, your ARI would be 150/125 = 120. An ARI above 100 means your rates run higher than the competition. A lower than 100 indicates you trail competitors' average rate.
This comparison reveals your precise rate positioning in the market. ARI quantifies whether you price above, below, or on par with others. As we'll explore next, this intelligence should directly inform your pricing strategy.
Interpreting Your Hotel's ARI Score
When analyzing your ARI, first understand what a "good" score depends on your positioning goals. For instance, hotels in the luxury segment should price higher than midscale properties. A luxury hotel's ARI of 110-115 may be ideal.
The key is tracking ARI trends over time. If your ARI slips from 115 to 105, your rates lose premium positioning. This requires reevaluation of pricing for future periods to stay competitive.
Also, compare your property's ARI to individual competitors rather than just the aggregate. If you have an overall ARI of 102 but trail your closest comp by 10 points, that's a red flag for adjustments.
Monitoring ARI patterns week-to-week and month-to-month reveals when your rates gain or lose ground. Use this intelligence to maintain optimal alignment with market conditions and competitor behavior.
What is ARI & How is ARI Calculated?
The basic ARI formula is:
Hotel ADR / Competitive Set ADR x 100 = ARI
Hotel revenue management systems track your daily ADR and ADRs for your competitive set to calculate this. The system aggregates ADR for your hotel over any given period, calculates the average comp set ADR for the same period, then divides your ADR by the comp ADR and multiplies by 100.
The result is your ARI for that period. Standard periods to analyze are weekly, monthly, quarterly, and annually. This reveals both granular and long-term ARI patterns.
Selecting Your Comp Set to understand What is ARI
A critical factor when calculating ARI is carefully choosing your competitive set—the group of hotels used for comparison. Ideal comp set criteria:
- Similar location, amenities, service level
- Target same guest segments
- Comparable room count and category mix
- Direct competitors for share of demand
A poor comp set skews your ARI and distorts pricing decisions. Reevaluate your set regularly to ensure optimal alignment as market conditions evolve.
What is ARI: Strategic Applications of ARI Analysis
Now that we've covered what ARI represents and how it's calculated, let's discuss strategic applications for revenue management:
Monitor ARI Weekly to Gauge Positioning: Analyze ARI at least weekly to assess market alignment. Sudden ARI drops signal losing ground. Upward movement means you can likely support ADR increases.
Inform Pricing Adjustments: Use ARI precisely to adjust rates. For example, an ARI of 98 indicates lowering rates to be more competitive. If ARI is 110+, you have room to increase prices.
Identify Need for Value Enhancements: Lagging ARI may signal guests don't perceive the total value of your rates. Implement upgrades like renovations or amenity additions to support price hikes.
Compare Segments and Categories: Calculate ARI for crucial segments and room types. If the ARI for luxury suites is 85 but the economy room ARI is 115, adjust accordingly.
There are infinite ways to slice and analyze ARI data for strategic decisions. The key is actively monitoring and applying trends revealed by your hotel's ARI patterns.
Partnering With Revenue Experts
To conclude, demystifying ARI gives you immense power to optimize pricing and outperform competitors. My advice is don't go it alone. Lean on the expertise of hotel revenue consultants.
At Emersion Wellness, our team brings decades of firsthand revenue experience. We equip hotels worldwide with custom tools to calculate and leverage ARI. Our hands-on guidance helps you interpret ARI intelligence and drive strategy.
Don't leave money on the table. Contact Emersion Wellness today to discuss how ARI can transform your hotel's pricing and profits. Together, we can maximize every revenue opportunity.
Final Word
Whether you're a seasoned revenue manager or just starting out, I hope this article empowers you to harness ARI fully. Tracking and comparing your hotel's average rate against competitors illuminates precise opportunities to improve market alignment and performance. Partner with revenue experts to unlock ARI's full potential. Here's to optimizing your hotel's pricing strategy and profits!
FAQs
Q: What does ARI stand for in hotel revenue management?
Q: How do you calculate a hotel's ARI?
Q: What is a good ARI score for hotels?
Q: How often should you monitor your hotel's ARI?
Q: What does an ARI lower than 100 indicate?
Q: How does ARI help inform hotel pricing decisions?
Q: How often should you reevaluate your competitive set for ARI?
Q: What technology can help calculate and analyze ARI?
Q: What key data makes up a hotel's ARI?
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Also Read: What is the Concept of Revenue Management and Why It’s Vital for Hotels
I'm Nathan Baws, a nutrition nerd, exercise and weight loss expert, and an unwavering advocate for good health. As the founder of Emersion Wellness, I'm passionate about crafting Seamless Weight Loss Programs to supercharge hotel revenue and transform lives. We've pioneered the World's First Plug & Play Weight Loss Programs for top hotels and resorts, sparking a wellness revolution. Beyond my professional journey, you'll often find me hiking, swimming, and riding the waves, embracing every moment in nature. Join me on this exhilarating journey towards diet, health and wellness.