Mews has published a guide to average room rate (ARR), a core hotel metric showing the average price paid per room sold over a period.
The formula
ARR is total room revenue divided by the number of rooms sold. In Mews' example, a hotel earning $75,000 in room revenue from 250 rooms sold in a month has an ARR of $300.
For a consistent calculation, Mews recommends:
- including room revenue and revenue-generating rooms sold in the same period;
- excluding unsold and out-of-order rooms;
- normally excluding complimentary and staff-use rooms;
- leaving out food and beverage, spa, parking and other ancillary revenue.
Because internal conventions vary, the guide stresses documenting the method and applying it consistently across periods and properties.
ARR versus ADR
ARR and average daily rate use the same core formula. Some hotels use ARR for longer periods and ADR for daily reporting.
Why ARR matters
Mews highlights four uses:
- gauging profitability when balanced against occupancy;
- benchmarking against competitors and adjusting pricing by segment;
- shaping pricing strategy across low and high seasons, for example through dynamic pricing;
- improving forecasts and budgets using historical data.
Read it in context
The guide cautions that a higher ARR is not automatically better. It should be interpreted alongside occupancy, RevPAR, profitability and market position, since a rate rise that empties rooms can reduce total revenue.
What drives ARR
Mews lists dynamic pricing, segmentation, distribution strategy and guest value as key levers, with technology such as a revenue management system supporting more responsive pricing.
Takeaway
ARR is a simple, useful metric, but it is most valuable when calculated consistently and read together with other KPIs rather than in isolation.
Originally published by Mews: Mews Explains Average Room Rate: Formula, Examples and How to Use It
