Average Rate per Guest (ARG) is a metric that can help any hotel operator better understand their operations. ARG can come in handy when assessing your pricing strategy and overall revenue performance, and is an asset when predicting future earnings.
The Average Rate per Guest is determined by calculating the average revenue rate that each guest generates. It goes beyond calculating the average room rate, because it also accounts for the upsells a guest purchases, such as in-room dining, spa services and late checkout.
Here is the average rate per guest formula:
ARG = Total Room Revenue + Ancillary Revenue / Total Guests
For example: If attempting to calculate the ARG for a hotel that had 100 guests booked in individual rooms that are $200 per night and the average guest opts for a $60 valet parking, the calculation would look like:
So the average revenue that each individual guest generates is $260.
Now that we’ve established what the ARG is, let’s look at a few ways hotels can use this calculation to improve their earnings:
Revenue analysis: Because the Average Rate per Guest considers more than just the Average Daily Rate of the room, it provides a more holistic overview of guests’ spending habits. This can be especially useful for hotels that offer many additional amenities.With ARG, hotels can better understand all their revenue sources through one calculation.
Pricing strategy: By analyzing ARG in tandem with other metrics like occupancy rate, hotels can identify opportunities to optimize pricing strategies. For instance, during times of low occupancy, it might be more advantageous to offer discounts on upsells rather than reducing room rates, especially if a particular item proves to be popular.
Profitability analysis: ARG helps hoteliers better assess the profitability of attracting different guest segments. Sometimes, hotels may attract more guests with lower room rates but find they attract higher-spending guests when nightly rates increase. Knowing Average Rate per Guest drives a more intentional pricing strategy and opens opportunities for pricing experimentation — and revenue growth.
Competitive advantage: ARG creates opportunities for hotels to provide guests with more bespoke, personalized guest experiences. When hotel owners understand which guest segments are likely to purchase which upgrades (and how much revenue they generate by doing so), they can better structure promotions and service offerings.
While calculating ARG involves numerous factors, it presents multiple opportunities for hoteliers to enhance guest experiences and boost revenue simultaneously. Here are some tech-enabled solutions for hotel owners to consider:
1. Understand your analytics: Utilizing a revenue management tool with in-depth metrics lets hoteliers analyze top-selling products in order to make informed decisions about which packages and items are the best to offer.
2. Offer dynamic upsells:Using technology to offer personalized upselling during the guest journey encourages guests to purchase additional services and amenities at the best time, providing an easy way for hoteliers to boost revenue.
3. Proactively collect guest reviews: 69% of travelers let their plans be determined by online travel reviews. When hoteliers use technology to prompt guests to leave feedback on sites such as Tripadvisor and Google, they increase their positive reviews and drive more bookings.
Your Average Rate per Guest is an important component of increasing your hotel revenue — and Canary streamlines this process. Through AI-powered upsells, Canary’s Revenue Management Software can provide you with plenty opportunities to increase your ARG. Request a demo today to learn more.
Everything you need to perfect the guest journey, boost revenue, and automate processes….
