What It is and What It Reveals About Performance

Let’s start with a brutal fact that there’s no getting away from: pricing decisions can make or break your revenue performance.

With demand patterns shifting constantly and competition just a click away, staying on top of your key performance indicators (KPIs) is essential.

But there’s good news in the form of tracking metrics.

Keeping a close eye on the right metrics doesn’t just help you understand how your hotel is performing, it enables you to make smarter, more informed decisions that drive profitability.

Among these KPIs, average rate index (ARI) stands out as one of the most crucial tools for understanding how your room rates compare to your competitors.

Whether you’re trying to improve market share, refine your pricing strategy or spot new revenue opportunities, ARI provides the context you need. In this short blog post, we’ll explore what ARI is, how to calculate it and how to use it effectively to improve your competitive edge.

What is average rate index (ARI)?

Average rate index or ARI is a hotel performance metric that compares a property’s average daily rate (ADR) to the average rate of its competitive set.

Expressed as a percentage, ARI helps you as a hotelier to understand how your room pricing stacks up against similar hotels in the same market.

An ARI of 100 means your ADR is exactly in line with the comp set. Above 100 means you’re charging more. Below 100 means you’re charging less.

One of the three main index metrics, ARI is commonly found in a STR (or STAR) report, alongside occupancy and revenue per available room (RevPAR) indexes.

Of course, while ARI doesn’t reveal everything about your performance, it offers a quick snapshot of how well your pricing strategy is keeping pace with your competitors.

How to calculate hotel ARI

To calculate your hotel’s ARI, use this simple formula:

For example, if your average daily rate is $120 and your comp set’s ADR is $100, your ARI is 120, meaning that, on average, you’re charging 20% more than your competitors.

To ensure accuracy, always use ADR data from the same time period for both your property and your comp set, whether it’s daily, weekly, monthly or year-to-date.

Most hotels use data from their STAR report, which benchmarks performance using anonymized market data. If you don’t have access to such a report, you’ll need a reliable internal or third-party source for competitor rates, ideally updated no less than weekly.

Regularly reviewing ARI – at least monthly – helps you stay informed about market shifts and assess whether your pricing strategy is competitive and effective.

Why is hotel ARI important?

ARI is a KPI, and a very important one alongside the likes of occupancy rate and RevPAR, because it shows how your pricing compares to the competition. While ADR tells you what you’re charging, ARI reveals whether you’re outperforming or underperforming in your market.

A high ARI suggests that your guests are willing to pay more for your rooms than those of comparable hotels, which is often a sign of strong branding, perceived value or effective pricing strategy.

Calculating ARI regularly – monthly, weekly or even daily in high-demand periods – helps you spot trends early and respond strategically. Ignoring ARI means you could miss vital clues about your competitive positioning, which risks underpricing and leaving revenue on the table or overpricing and losing market share without realizing it.

If you want to improve your ARI, focus on both rate strategy and guest experience, from their exposure to your friendly staff when they check in at your front desk, the popular amenities they’d expect during their stay (free Wi-Fi, free parking, air conditioning, a good on-site restaurant and all the rest), all the way to check-out.

Monitor competitor pricing, optimize rate plans and enhance perceived value through service, amenities or guest reviews. And invest in staff training, improve your online presence and respond promptly to guest feedback.

All of this will contribute to a stronger reputation that can justify higher rates; after all, ARI is as much about market awareness as it is about internal performance, so use it to guide smarter, data-driven decisions.

Measuring hotel performance with ARI, RGI and MPI

Alongside ARI, two other key index metrics help hoteliers assess market performance: revenue generation index (RGI) and market penetration index (MPI).

RGI compares your hotel’s RevPAR to that of your comp set.

It’s calculated as:

A score above 100 means you’re capturing more revenue per room than your competitors.

MPI, on the other hand, compares your occupancy performance and is calculated as:

An MPI above 100 means you’re filling more rooms than the market average.

Each metric tells a different part of the story. ARI shows how your rates compare, MPI reveals occupancy performance and RGI blends both to measure total revenue effectiveness.

Looking at just one in isolation can be misleading. For example, a high ARI with a low MPI could suggest you’re overpricing. Tracking all three will help you strike the right balance between price, occupancy and revenue.

When knowing ARI is most valuable

Understanding your ARI is useful at any time but it becomes especially valuable in specific scenarios where competitive awareness and pricing precision are critical.

In the following sections, we’ll look at two of the most impactful uses: benchmarking your hotel’s performance against the competition; and adjusting your pricing strategy to stay competitive.

Knowing when – and how – to use ARI in these contexts can make a real difference to your revenue outcomes.

Competitive benchmarking

Average rate index plays a central role in benchmarking because it gives a clear view of how your pricing compares to the market.

By tracking ARI against a carefully selected comp set, you can quickly see whether you’re leading, lagging or staying level with your competitors. This insight helps you identify both threats and opportunities. Ask yourself: are your prices too low relative to similar properties or are you holding strong in a high-demand period while others discount?

Benchmarking with ARI is most effective when based on reliable, up-to-date data, ideally from sources like STR reports or trusted market intelligence tools.

Many hoteliers review their ARI weekly or monthly to track shifts in the competitive landscape and inform rate decisions. And over time, these benchmarks help you to establish pricing targets and identify where strategic adjustments are needed to stay competitive.

Pricing optimization

ARI is a powerful tool for refining your pricing strategy because it shows whether your rates are aligned with the market and still represent value for money.

A consistently low ARI may indicate that you’re underpricing and missing revenue potential, while a high ARI – especially if occupancy is low – could suggest you’re overpricing and losing bookings.

By tracking ARI alongside booking pace and demand forecasts, hoteliers can adjust rates dynamically to strike the right balance between competitiveness and profitability.

Effective pricing optimization involves regular ARI reviews, particularly before high-demand periods or promotional campaigns.

You can often use ARI trends to set rate thresholds, respond to market shifts and fine-tune your pricing by segment or channel. Combined with tools like revenue management systems or STR reports, ARI provides the real-time context needed to make confident, data-led pricing decisions.

Average rate index isn’t the only metric that matters

While ARI is a valuable indicator of how your rates compare to the competition, it’s just one piece of the puzzle.

To get a complete view of performance, you must also track occupancy, RevPAR, MPI, RGI and many other metrics, each offering different insights into pricing effectiveness, market demand and revenue generation. Relying on ARI alone can lead to missteps, especially if rate positioning comes at the expense of volume or guest satisfaction.

Competitive data is most powerful when it’s part of a broader, integrated approach to revenue management.

Using ARI in combination with other KPIs helps hoteliers like you make smarter pricing decisions, respond more effectively to market shifts and uncover hidden opportunities for growth.

Now, more so than ever, consistent access to quality benchmarking data is essential for driving sustainable performance and long-term profitability.

About Lighthouse

Lighthouse (formerly OTA Insight) is the leading commercial platform for the travel & hospitality industry. We transform complexity into confidence by providing actionable market insights, business intelligence, and pricing tools that maximize revenue growth. We continually innovate to deliver the best platform for hospitality professionals to price more effectively, measure performance more efficiently, and understand the market in new ways.

Trusted by over 65,000 hotels in 185 countries, Lighthouse is the only solution that provides real-time hotel and short-term rental data in a single platform. We strive to deliver the best possible experience with unmatched customer service. We consider our clients as true partners – their success is our success.

This article originally appeared on Lighthouse.