As complex businesses with many moving parts, hotels can often prove challenging when determining overall profitability and operational performance. While the industry commonly uses KPI formulas such as RevPAR and ADR to benchmark revenue income and standings against competitors, they alone cannot provide a complete picture of organizational health.
To ensure sustainable growth and hotel profitability, the industry must be able to measure income performance from all revenue sources while taking operational needs and expenses into account. Fortunately for hoteliers, this crucial requirement can be addressed using a formula known as GOPPAR- a key analytic that should always be at the center of any hotel business strategy.
What is GOPPAR for Hotels?
For the unacquainted, GOPPAR stands for gross operating profit per available room. Using the GOPPAR formula, hotels can determine their operating profit margins which take business expenses into account. Hoteliers can also compare operating profit to the number of available guestrooms for a specific time period, providing valuable insight into business performance.
With GOPPAR also taking income streams beyond room revenue into account such as F&B operations, hoteliers can obtain a true reflection of business performance- an essential benchmark analytic for measuring and managing the success of hotel revenue management strategies.
Why is it Important?
As an analytic that provides a full analysis of incoming and outgoing revenue, GOPPAR is highly useful for a range of hotel benchmarking needs. Using the formula, hoteliers can determine if their strategies are meeting, exceeding or underperforming when compared to business goals.
Importantly for underperforming hotel businesses, hoteliers can leverage GOPPAR to swiftly identify and
implement any adjustments as needed to ensure realignment with organizational expectations. This capability can make all the difference between getting a business back on track towards enhanced profitability and growth, or having to eventually file for some sort of financial assistance or bankruptcy.
How to Calculate it
Although GOPPAR may be a more comprehensive performance-measuring analytic, calculating it is actually relatively straightforward and simple. To arrive at an accurate sum, hotels start by adding up their gross operating profit (GOP). This includes combining income from all revenue-generating areas as well as subtracting any operational costs.
The final step is to divide GOP by the number of available rooms for the period under review, with the result reflecting what a property’s GOPPAR is. To make things simpler, below is the formula that hotel businesses should use in order to identify GOPPAR performance:
GOPPAR= Gross Operating Profit / No. of Available Rooms
GOPPAR Use Case Examples
GOPPAR is particularly valuable for hotels seeking to grow their operations and market presence. Growth strategies more often than not require substantial investment- whether it be in the form of new amenities, renovating guestrooms or purchasing additional inventory to name a few examples. With GOPPAR, hoteliers can determine how much revenue is available for their investment goals.
Using GOPPAR, Hotels can also importantly identify if a specific expense is consuming too much revenue in order to sidestep operating at a loss. By referencing GOPPAR performance results, hoteliers can instead far better balance incoming revenue with outgoing expenses to maintain healthy profit margins.
With hotel business performance and overall market conditions able to fluctuate suddenly with little warning, GOPPAR also offers vital guidance when a hotel experiences a drop in revenue and needs to cut back on expenses. Using GOPPAR, hoteliers can identify which service offerings generate the least income and can reduce supplies as needed to bump profit margins back up.
Yet another advantage of GOPPAR is its ability to uncover which revenue streams provide the most profit by comparing generated revenue alongside any expenses required to offer a service. This crucially allows hoteliers to identify which service offerings are the most in-demand along with what it takes to further improve an offering’s financial performance.
Average Hotel Industry GOPPAR
While the global pandemic was responsible for a drastic decline in average GOPPAR for much of the past two years, the industry has steadily been able to observe a significant improvement in more recent months. While once as low as $20, GOPPAR has been able to bounce back to an average of $59.
Regardless of industry-wide fluctuations, a good rule of thumb for any hotel business is to seek incremental and sustainable monthly GOPPAR growth. This is perhaps the best indicator demonstrating a hotel as a healthy organization able to continuously strengthen its bottom line results.
Tips to Increase GOPPAR
Hoteliers striving to boost their GOPPAR performance should first consider increasing the number of direct bookings in order to minimize the cost of sales that often comes from using OTAs. Although attempting to increase direct bookings may initially appear to lead to an increase in staff workloads, new AI-based upselling technologies are proving otherwise while boosting revenue-earning results.
Able to leverage data analytics from hotel systems such as the PMS, modern and advanced upselling solutions can custom-tailor promotional offerings based on each guest’s unique preferences and expectations. This not only maximizes the likelihood of a sale resulting in higher profit margins, but does so automatically and all without the need for any direct staff involvement.
With GOPPAR including a hotel’s full range of income-generating sources, more comprehensive solutions can also extend the same automated and data intelligence-driven upselling capabilities to other property offerings. Examples include property rentals, tour guide packages, dining plans and much more- all able to significantly add to a property’s monthly GOPPAR and financial wellbeing.
Graduated from Standford University, Arielle has over 5 years of experience in the Hospitality industry. She holds an MBA in business administration from the IDC Herzliya, Israel. She currently works as Account Manager at UpStay, building and maintaining strong, long-lasting customer relationships. She is deeply passionate about helping hoteliers unlock significant new revenue streams from unsold premium inventory.