ARR stands for Average Daily Rate and is a common metric used in the hotel industry to measure the average price at which hotel rooms are sold for a specific period of time, usually on a daily basis. It is calculated by dividing the total room revenue by the number of rooms sold (excluding complimentary or discounted rooms). ARR is an important indicator for hotels to assess their pricing strategy and track their financial performance.
Here are a few examples to further illustrate ARR:
A hotel generated a total revenue of $10,000 from room sales in a month. During that month, a total of 100 rooms were sold. Therefore, the ARR for that month would be $10,000 divided by 100 rooms, resulting in an ARR of $100 per room.
A hotel had a total revenue of $20,000 from room sales in a week. During that week, 200 rooms were sold. In this case, the ARR for that week would be $20,000 divided by 200 rooms, resulting in an ARR of $100 per room.
A hotel had a total revenue of $50,000 from room sales in a quarter (3 months). During that quarter, 500 rooms were sold. The ARR for that quarter would be $50,000 divided by 500 rooms, resulting in an ARR of $100 per room.
These examples demonstrate how ARR is calculated by dividing the total room revenue by the number of rooms sold during a specific period. ARR helps hotels evaluate their pricing strategy, monitor room rate trends, and make informed decisions regarding rates and occupancy levels.