Fair share of the market: What it is & how to calculate It

At the end of the day though, it can often be beneficial to go back to the basics and simply ask ourselves:

“Are we beating the competition?”

This simple question can often cut through the Gordian data-knot, and it's for this reason that fair share continues to be such an effective framework for analyzing hotel performance. Follow along as we explain what exactly ‘fair share’ is, why it’s important, and best of all: how to calculate fair share for a variety of metrics you’re likely already familiar with.

What is fair market share?

“Fair share” is the average performance of the competitive set, for any given metric. If you perform better than this average you can be said to be “above fair share”, and if you perform worse, then you are “below fair share”.

For example: last week your compset’s average occupancy was 74%, but you managed to run 80% occupancy. This means you were above fair share by a strong margin. The compset average (fair share) is itself the metric you're comparing against.

How to calculate your hotel’s fair market share

Since revenue managers always compare themselves with competitors for a variety of metrics, it is highly beneficial to have a universal calculation, or index that can standardize, and quantify just how much one is above or below fair share.

The following equation shows how you can take any metric, for any time period and standardize your performance vs. the compset in the form of an ‘index’.

Let’s take a quick example. Let’s say last night your RevPAR was $98.14, and your compset’s RevPAR was $96.78. Using the formula shown above, we get a calculated index of 101.41. Since this number is > 100, you are above fair share! In just a bit we’ll talk more about this specific index (we actually just calculated a “RevPAR Index, or “Revenue Generation Index”)!

The chart below helps you visualize what a particular index might look like over time. Periods where the index is above 100% are those times where the hotel is outperforming the compset. This is when the hotel is said to be “above fair share”, or “stealing share” from their competitors.

The times when a hotel is underperforming their competitors are those time periods when the line falls below 100%, and the hotel is “losing share”, or “not achieving fair share”.

Why fair share matters for hotels

Understanding the concept of fair share matters because it quickly allows you to assess your performance objectively; if you’re consistently underperforming competitors then something is wrong (perhaps an inaccurate compset or sub-optimal strategy), if you’re consistently beating the compset, you’ve got a competitive edge worth continuing.

When you analyze various metrics through this ‘fair share’ framework you can begin to discover market trends, uncover strengths and weaknesses in your strategies, and make adjustments that allow you to compete more effectively. When you start to analyze data in this way, and investigate the why behind these outcomes, you begin to unlock something even more powerful. This form of analysis is called benchmarking.

Other important metrics for benchmarking hotel performance

Now that you have a better understanding of what fair share is and why it’s important, let’s build on this knowledge and learn the metrics that are used most commonly in hotel benchmarking.

Average Rate Index (ARI)

The Average Rate Index (ARI) measures a hotel’s ADR performance relative to its competitive set. It is calculated by dividing your ADR by that of your compset and multiplying by 100.

An ARI score above 100 means your hotel is achieving a higher ADR than your competitors, while a score below 100 indicates lower pricing or weaker rate positioning.

Its important uses in benchmarking include:

• Revenue positioning: ARI highlights how effectively your hotel captures revenue per room compared to its competitors.

• Pricing strategy assessment: It provides insights into whether your hotel’s pricing aligns with its perceived value in the market.

• Balanced performance: When analyzed alongside MPI, ARI helps you strike the right balance between occupancy and rate to maximize revenue.

Tracking ARI allows you to fine-tune your pricing strategies and maintain a competitive edge in revenue generation.

Market Penetration Index (MPI)

The Market Penetration Index (MPI) measures a hotel’s occupancy performance relative to its competitive set. It is calculated by dividing the hotel’s occupancy rate by that of your compset and multiplying by 100.

An MPI score above 100 indicates your hotel is capturing more than its fair share of the market's occupied rooms, while a score below 100 suggests underperformance compared to competitors.

MPI is important for a number of reasons, including:

• Market share insights: MPI helps you assess how well your hotel is attracting guests in its market, offering critical feedback on pricing, distribution and marketing strategies.

• Performance benchmarking: By tracking MPI over time, you can evaluate the success of strategies aimed at improving occupancy relative to your compset.

• Competitive edge: A strong MPI positions a hotel as a leader in the local market, attracting attention from guests and stakeholders alike.

Monitoring MPI ensures you stay competitive and can adjust your strategies to maximize occupancy and revenue opportunities.

Revenue Generation Index (RGI)

The Revenue Generation Index (RGI) measures your hotel’s total revenue performance relative to its competitive set. It is calculated by dividing the hotel’s RevPAR by that of your compset and multiplying by 100.

An RGI score above 100 indicates your hotel is outperforming its compset in revenue generation, while a score below 100 suggests underperformance.

Three key insights that RGI provides:

• An overall performance indicator: RGI combines occupancy (MPI) and rate (ARI) metrics, providing a holistic view of revenue success.

• Strategic adjustments: It helps identify whether revenue shortfalls are due to pricing, occupancy or both, guiding targeted improvements.

• Competitiveness: A strong RGI demonstrates effective revenue management and market leadership.

By consistently monitoring RGI, you can ensure balanced, optimized strategies to maximize revenue relative to your competitors.

Rank

Rank is the position your hotel holds amongst your compset for a given metric. 

Rank is determined by your compset size. If you have a compset composed of 6 other hotels, then your rank will vary from #1 to #6 depending on your performance. Rank can be useful, as over time you will find that you tend to fall within a certain range. For example, a hotel may find that it typically ranks in say the 3rd or 4th position for ARI, but when it manages an event or high-demand date exceptionally well, it is able to jump in rank up to the #1 spot in ARI.

Rank is also useful for understanding just how exceptional, or unexceptional your performance is. Sometimes you may find that your MPI or RGI is a modest 104, but you are still ranked 1st! This may be a sign that you are in a highly competitive market.

While rank alone won’t tell you if you are above or below fair share in a particular metric, it’s still highly useful for adding context, and giving you a better idea of where exactly you stand vs the compset.

Keep in mind that the list above is by no means exhaustive. In fact, many other performance metrics can, in theory, be benchmarked.

Improve Competitive Hotel Performance Benchmarking

Benchmarking is a crucial type of analysis for revenue managers and commercial strategists. Without understanding how our compset is performing, we are in effect ‘flying blind’ and may not know whether a certain strategy is effective or detrimental.

It’s no longer sufficient to rely on basic reports that simply tell you whether your occupancy was stronger than the competitive set. Effective benchmarking requires the right tools; ones that allow for deeper analysis into things like market segmentation, smart compsets, and even length of stay.

 If you’re curious about what these tools look like and what they are capable of, take a look at Lighthouse’s benchmark insight to understand more about what’s cutting edge in the market right now.