In today’s competitive hospitality market, many hotels find that their actual Average Room Rate (ARR) falls short of the budgeted target. This raises a fundamental question: what strategies can hotels apply to close the gap and ensure sustainable revenue growth?

At first glance, the solution may seem straightforward — simply raise room rates for future bookings. But the real challenge lies in finding the right balance. Without proper analysis, reactive pricing changes can backfire, leading to reduced occupancy and even lower ARR. A more systematic approach is needed.

Understanding the Concept of Average in Hotel ARR

Statistically, an average represents the sum of all values divided by the total number of values. In a normal distribution, the mean, median, and mode align to form a bell-shaped curve. This means some values will always fall above the average and others below it.

Translated into hotel operations, the only way to sustainably raise ARR is to add more transactions priced above the current average. Adding lower-priced transactions, even in large volumes, will bring the average down.

How to Identify Segments That Lower ARR

Every hotel develops an annual budget as a benchmark for performance. If the actual ARR underperforms, the first step is to compare actual selling rates with budgeted rates across different segments.

The focus should be on identifying which market segments or accounts consistently show lower-than-budgeted rates. Once these are identified, the next step is to analyze the root causes — for example, heavy discounting in certain channels, corporate contracts with low rates, or seasonal promotions that reduce overall yield.

After understanding the underlying issues, hotels can adjust future rate strategies in those specific segments. This targeted approach reduces risk and ensures that changes are both realistic and market-appropriate.

Continuous Improvement for Hotel Revenue

Improving ARR is not a one-time fix but a continuous improvement process. The Deming Cycle (Plan–Do–Check–Act) provides a useful framework:

  • Plan: Set clear ARR targets by segment.
  • Do: Implement pricing adjustments.
  • Check: Monitor results against expectations.
  • Act: Refine strategies based on performance.

By applying this cycle regularly, hotels can align pricing strategies with demand, optimize segment performance, and maintain the delicate balance between occupancy and rates.

Conclusion

Increasing ARR is not about raising prices indiscriminately. It requires thoughtful analysis, identification of underperforming segments, and consistent refinement of strategy. Hotels that adopt a disciplined, data-driven approach are better positioned to achieve their budgeted ARR targets, strengthen revenue performance, and ensure long-term competitiveness.

Written by Ojahan Oppusunggu, Director of Technical & Technology, Artotel Group.