Average revenue per account, or ARPA, is a KPI used in the hotel industry for revenue management purposes. The metric tells hotel owners the amount of revenue generated, on average, per customer account. As a result, it is a good indicator of business performance. The metric is sometimes known as average revenue per user.
What does ARPA stand for?
ARPA, or annual revenue per account, details the average amount of revenue a hotel is generating from each of its customer accounts over a specified time period. It is, therefore, extremely valuable for those in the hotel industry, because it is able to demonstrate business growth at a per unit level.
How Do You Calculate ARPA?
In order to calculate ARPA, a time period must be decided. It is usually done on a monthly or yearly basis. Looking back at recent past months can help to establish the average revenue per existing account, while measuring upcoming months and comparing it to past performance can help to show average revenue per new account.
The basic formula for calculating average revenue per account is as follows:
ARPA = (Monthly) Recurring Revenue / Total Number of Accounts
Uses and Limitations
The main use of ARPA is for revenue management purposes, because it shows how much revenue a hotel is taking, on average, from each account. This can help to show business growth, or when performance declines, which may be an indicator that prices need to be adjusted, or that more customers need to be attracted.
One potential limitation of the KPI is that it measures revenue on a per account basis, rather than on a per user basis. Although the metric is sometimes referred to as average revenue per user, this is not an entirely accurate description of what the metric shows, because some users may actually have more than one account.
More Revenue Management KPI’s
KPI stand for Key Performance Indicator. With KPI’s you can measure and identify areas of success and failure, as well as trends related to demand and customer behaviour. Besides ARPA, other important Revenue Management KPI’s are Occupancy rate, RevPAR, RevPOR, ADR, TRevPAR, NRevPAR, EBITDA and GOPPAR.