Ever been lost in the maze of hospitality acronyms? We feel you. But behind all that jargon are key metrics that really matter for your property's performance.
GOPPAR recently joined the club of popular hotel abbreviations. GOPPAR stands for gross operating profit per available room. It looks at profitability and reveals how well hotels are doing at keeping hard-earned revenue. Hotel owners, general managers and regional offices are especially interested in this metric.
Let’s look at how GOPPAR fits in with other hotel key performance indicators (KPIs), what it covers and how you can boost GOPPAR at your property.
Revenue: The income you generate from selling rooms, food and beverage (F&B) and other services.
Occupancy rate: The number of occupied rooms divided by your total available rooms, multiplied by 100.
Average daily rate (ADR): Divide room revenue by the number of rooms sold to determine ADR.
Revenue per available room (RevPAR): There are two ways of calculating RevPAR. You can either multiply your ADR by your occupancy rate, or divide room revenue by the number of available rooms.
Profit: This is left after you cover all operating costs and taxes.
GOPPAR: The gross operating profit per available room explores your ability to generate revenue and be profitable.
Keep reading to find out how to calculate your hotel’s GOPPAR and ways to increase it.
The Rise of GOPPAR
RevPAR, ADR and occupancy used to form the golden trio of revenue management KPIs. But while they give a good picture of room sales, they leave out other revenue centers like food and beverage (F&B), meetings, incentives, conferences and events (MICE) and the spa. You’ve probably also noticed that these KPIs only look at a hotel’s top-line and not its profitability.
In recent years there’s been a shift towards total hotel revenue management (THRM). This means looking beyond room revenue and examining all departments, their revenue and costs. The result is a bigger, more accurate picture that looks at profitability as well. And this is where GOPPAR comes in.
Definition and Calculation of GOPPAR
A hotel’s GOPPAR is its gross operating profit per available room. Calculate GOPPAR by dividing your gross operating profit (GOP) by your total number of available rooms.
GOPPAR = Gross Operating Profit / Total Number of Available Rooms
Components of GOPPAR
Total revenue. This is your hotel’s total income from all revenue sources such as rooms, F&B, spa, MICE, etc.
Operating expenses. The costs you incur from running your business (e.g. salaries, room-related expenses, distribution, food, software licenses, etc.).
Gross operating profit. Calculate this by taking your total revenue and subtracting the cost of the goods and services you sell.
Available rooms. The number of rooms available for sale at your hotel. This could be less than your total room count if you’re renovating, or rooms are out of order for another reason.
Sample GOPPAR Calculation
To put all this into context, here’s an example of a hotel GOPPAR calculation for a fictional property.
The owner of the Seaview Hotel wants to calculate his property’s GOPPAR for the past year, so he can compare it to previous years. For this, he collects all the necessary numbers first:
In the next step, he calculates his gross operating profit (GOP) by subtracting the total expenses from the total revenue:
Total Revenue: $9,000,000 — Total Expenses: $3,750, 000 = Gross Operating Profit: $5,250,000
The GOP comes to $5,250,000.
Finally, the owner plugs these figures into the GOPPAR formula:
This means that over the past year, the Seaview Hotel generated a profit of $94.89 per room.
Benefits of Tracking GOPPAR for Hotels
Financial performance evaluation
Unlike many other KPIs, GOPPAR looks at profitability and not only revenue. In short, it shows you what’s left after covering your expenses. This gives you a clear picture of your business performance and health. It can reveal that cost-saving measures may be necessary, e.g. by reducing distribution costs when selling rooms.
GOPPAR allows you to compare yourself effectively, either with your compset (if you have access to their figures) or with other hotels in your group or brand. Benchmarking against them shows who is doing best and can inspire follow-up questions like:
What are the top performers doing differently?
Which of their measures can you implement at your property?
Chances for improvement
After looking at your GOPPAR, you’ll see where you can optimize your operations and spending. The idea is to reduce costs and increase efficiency in ways that don’t harm service quality or employee morale.
Labor costs.They’re the biggest cost factor in hospitality. Even slight increases can have a big and lasting impact on your total cost.
Overhead expenses. These are necessary to create and sell your service. They include costs for maintenance and repairs, insurance and rent among other things. If they get more expensive, your profitability suffers.
Cost of goods sold. Inflation can drive up food costs and utility bills, even if your consumption remains the same. Again, this eats into your profit margin.
Market demand and competition. High demand allows for higher rates and increased profitability. But a competitive market may push things in the other direction. Smart revenue management is necessary to make the most of either situation.
Economic conditions. Unfortunately, this isn’t something you can control. Uncertain times often result in lower consumer spending which can impact your top and bottom line. On the other hand, economic upturns can do wonders for your business. Either way, keep an eye on developments, so you can react accordingly.
Strategies to Improve Hotel GOPPAR
If you’re looking for ways to increase your GOPPAR, this next section is for you.
Revenue management techniques
Dynamic pricing. Adjust your rates based on demand and competition in the market. This helps you make the most of busy times by charging higher rates to drive extra revenue. During low-demand periods, you can lower your prices and/or change booking restrictions to capture as much business as possible.
Demand forecasting. If you knowwhen to expect high and low demand, you can price your rooms accordingly in advance. This ensures you get steady pick-up and don’t have to hope for last-minute bookings to fill up your hotel. Accurate forecasts also show you when some extra promotions and sales activities will be necessary to boost your revenue.
Marketing and promotions. Find effective ways to get the word out about your hotel to sell more rooms. That could mean using paid ads, social media marketing, email campaigns, brand partnerships or seasonal deals and packages. There’s no one-size-fits-all solution, so try different approaches to find the one that works for your hotel and its target audience.
Tapping into property-wide revenue sources
Push for MICE sales. Encourage your sales team to go out and actively pursue new clients. Ensure they have the resources they need to do this, e.g. the freedom to make offers and tools to manage client communications and RFPs.
Drive revenue in F&B. Increase your F&B venues’ capture rate with deals for your in-house guests. That could be a free bar snack with every two drinks they order or a discount on your restaurant’s set menus. Attract more local patrons as well with interesting seasonal menus, pop-up dinners or collaborations with nearby businesses.
Increase ancillary revenue. The easiest way to boost ancillary revenue is by upselling guests to higher room categories or offering them add-on services. Automate this step with a digital upselling tool. This will bring the best results without adding an extra item to your team’s to-do list.
Cost control measures
Efficient labor management
Find ways to work more efficiently and keep labor costs down all while paying reasonable salaries and wages. The most effective way to streamline workflows is to implement technology that automates some tasks and speeds up others.
Yes, there’s an implementation cost, but it’s often deductible and will pay for itself quickly. On top of that, going green is a great way to attract guests who want to reduce their trip’s carbon footprint. If you don’t know where to start, hire an expert to consult you on which measures make the most sense at your hotel.
Vendor negotiation and maintenance
Negotiate good deals with your vendors and look for the best value. That doesn’t necessarily mean going with the cheapest option, especially when it comes to furniture, fixtures and equipment. Pick things that will last long and need few repairs.
If you want to see a full picture of your hotel’s business performance, GOPPAR is a good place to start. Keep your eye on your hotel’s GOPPAR and how it develops to ensure you’re managing your costs and maintaining or even increasing your profitability over time.
There will constantly be new challenges such as rising costs, economic uncertainty or new competitors. Stay on top of these new developments and their impact on your KPIs. That allows you to respond quickly and make the needed strategic decisions that guarantee your long-term success.
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