Calculate your Property’s GOPPAR
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What is Gross Operating Profit per Available Room (GOPPAR)?
In recent years, inflation and staffing shortages have driven up operating costs in the hospitality industry, placing added scrutiny on profitability. Fortunately, hotel room pricing has risen too, allowing properties to maintain profit levels even while occupancy hasn’t fully recovered to pre-pandemic levels. However, if independent properties don’t carefully manage costs and revenue in 2023, they risk allowing inflation to consume all the benefits of higher rates.
Traditionally, lodging businesses used three key metrics to measure performance: average daily rate (ADR), occupancy (OCC), and revenue per available room (RevPAR). Today, recognizing the limitations of these metrics, more owners and operators are paying closer attention to a fourth metric: Gross Operating Profit per Available Room, or GOPPAR.
The importance of GOPPAR for hotel profitability
The main limitation of ADR, occupancy, and RevPAR is they account for room revenue only. While these metrics provide strong indicators of how successful a property is at driving bookings, rates, and room revenue, they don’t account for the costs or expenses associated with operating the property. Nor do they consider the revenue generated by other revenue centers on the property, such as the restaurant, room service, and parking. For some hotels, this revenue represents a substantial portion of total revenue.
Gross Operating Profit per Available Room (GOPPAR) overcomes these limitations by accounting for total hotel revenue and operating costs to measure a property’s operating profit. By dividing total profit by the available guestrooms on property, GOPPAR provides a simple, holistic measure of the breakdown of profit per room.
GOPPAR vs. RevPAR
So while RevPAR is an important metric, it accounts for only the room revenue portion of GOPPAR. By factoring in total revenue and operating costs, GOPPAR provides lodging operators with a more complete snapshot of hotel performance.
How is GOPPAR calculated?
If you have access to the required data, which can be found on a property’s P&L statement, measuring GOPPAR is easy. For example, if you want to measure your property’s GOPPAR for last January, simply divide the Gross Operating Profit (GOP) for that month by the total available room nights.
A property’s Gross Operating Profit (GOP) is the difference between its operating revenue and operating expenses. Profit is reported as an absolute number, whereas profitability, or gross profit margin, is reported as a percentage.
Note that “available rooms” is different from “occupied” or “sold” rooms. It refers to the total number of rooms available for sale on the property, including both sold and unsold rooms. When you measure GOPPAR for a given month, you need to multiply the available rooms by the number of nights in the month to reach the total available room nights. So, for example, if your property has 25 rooms, in the month of January your total available room nights would be 25 X 31 nights = 775.
For any given period, such as a month or year, use the following formulas to calculate these key performance indicators (KPIs):
Gross Operating Profit (GOP) = Gross operating revenue – Gross operating costs
Gross Operating Profit per Available Room (GOPPAR) = Gross Operating Profit (GOP) / Total number of available room nights
Gross profit margin = (Gross operating revenue – Gross operating costs) / Gross operating revenue x 100
Examples of hotel GOPPAR calculations
Let’s look at a simple example. Let’s say your property is the Sleepy Inn, with 25 rooms. In January, its gross operating revenue was $189,000, and its gross operating costs were $110,800. Your Gross Operating Profit (GOP) would be $189,000 - $110,800 = $78,200. And your gross profit margin would be $78,200 ÷ $189,000 X 100 = 41.4%.
To calculate your GOPPAR for January, you would divide $78,200 (your GOP) by 775 (your total room nights) to arrive at a total of $100.90.
But what if your GOP in January was negative, at, say, -$12,210? What would your GOPPAR be then? The calculation would be the same, but the outcome would be negative too: -$12,210 ÷ 775 = -$15.75. So, the gross operating “profit” per available room would actually be shown as a loss.
What affects your GOPPAR?
How can you improve your property’s GOPPAR? First, it’s important to recognize the many factors that influence GOPPAR and hotel profitability in general. These factors vary by property and can be divided into revenue and operating costs.
Here are a few examples:
- Room rates
- Occupancy rates (bookings)
- Food & beverage revenue sources, including onsite meetings & events
- Revenue from ancillary services like parking, retail outlets, and the spa
- Discounts and promotions
- The business mix (leisure, business, group, etc.)
- The channel mix (OTA, direct, wholesale, GDS, etc.)
- External factors such as market demand, economic conditions, weather, and travel disruptions
- Labor costs (typically a hotel’s highest operating cost)
- Food & beverage costs
- Housekeeping costs
- Guest acquisition costs (including OTA commissions and booking fees)
- Taxes and other fees
- External factors like inflation, labor shortages, and supply chain issues
The importance of GOPPAR for independent lodging businesses
GOPPAR is important to accommodation owners and operators because it indicates how well the property is being run. Are hotel revenue managers balancing revenue with costs to maintain a good operating profit? By breaking down overall profit by room, GOPPAR shows performance by unit, an important consideration for owners when valuating, buying, or selling a property. For independent properties, it provides an important metric for determining the benefits of operating as an independent rather than as a branded hotel or franchise. Generally, the higher the GOPPAR, the more valuable the property is.
By measuring your property’s GOPPAR and tracking it from month to month and year to year, you will have a simple, powerful metric of overall performance to assist with business planning, cost control, revenue management, and finding ways to better manage your operational strategy.
For example, if performance in your restaurant is lagging, to save operating costs you might reduce operating hours and switch to lower-cost ingredients. And to boost revenue, you might increase menu prices and hold a daily happy hour.
Tracking GOPPAR Performance
To create a profit-oriented culture within your business, it’s a good idea to set GOPPAR objectives for each month and year overall. Share the objectives with your team and review financial performance monthly, working together to come up with ways to meet or exceed objectives by generating incremental revenue and reigning in costs. As an added incentive to achieve objectives, consider tying them to annual management bonuses.
Another way to track and benchmark performance is to measure GOPPAR relative to your competitive set. Companies like STR and HotStats publish monthly reports of indexes of rate, occupancy, RevPAR, and GOPPAR by region. Properties can pay to subscribe to these reports to track their market share of these indexes.
How to use GOPPAR in 2023
Hoteliers learned important lessons about profitability and GOPPAR during the pandemic. When Covid-19 first hit the hotel industry, and occupancy plummeted, many owners and operators shut down hotel operations to reduce operating costs. When travel returned in 2021, but demand remained relatively weak, many hotels reopened but kept minimal staffing and services to contain costs. And in 2022, even though occupancy was still below pre-pandemic levels, many hotels were able to return to 2019 profitability levels, or even exceed them, by increasing prices and keeping costs down.
Most U.S. hotel markets recovered top-line performance at or beyond 2019 levels in 2022, according to an STR analysis for AHLA. However, performance dipped when adjusted for inflation and when profitability was measured. Fortunately, the return of business travel in the fall of 2022 pushed more major markets closer to their pre-pandemic levels in GOPPAR.
In 2023, with operating costs still high and fears of a recession in the air, hoteliers will need to implement a thoughtful revenue management strategy if they wish to maintain or build profitability. This includes trimming costs wherever possible during low season, leveraging high demand to drive higher rates in high season, and maintaining a dynamic pricing strategy year-round.
It also means utilizing hotel technology to create efficiencies and save costs, such as an integrated hospitality platform equipped with a PMS, payments processing system, reservations system, pricing intelligence tool, channel manager, and rate shopping tool.
With the right strategies and technology in place to measure and track GOPPAR, accommodation operators will be well-positioned to manage a profitable operation throughout 2023 and into the future.
Find out how Cloudbeds’ cloud-based, integrated hospitality platform can help you increase GOPPAR by streamlining operations and growing revenue faster.