Get to grips with GOPPAR to make your hotel more profitable

articles March, 2018

Get to grips with GOPPAR to make your hotel more profitable

From RevPAR to GOPPAR: the importance of key performance indicators for hotels

There are many performance indicators which must be considered by hotel managers today. We regularly talk about RevPAR, and rightly so, but there is another variable which is proving to be a formidable tool in helping to establish the profitability and productivity of establishments, known as GOPPAR (Gross Operating Profit Per Available Room).

In a previous article, we told you the secrets of RevPAR and TrevPAR, two performance metrics which form part of the everyday working process for revenue managers. GOPPAR, then, does not focus exclusively on the revenue generated by rooms, but takes into account overall income as well as the costs which can impact a hotel’s profitability.

And indeed, if you think about it, your RevPAR can naturally increase over time if you implement a good revenue management strategy. However, your profitability depends on the costs you have to meet. These could include an increase in suppliers’ prices, costs to cover refurbishment work carried out on your hotel, or a rent increase.

GOPPAR in a real-life context

Your hotel has more than just rooms. You will surely have other services available for your clients to use: a restaurant, bar, spa, conference rooms… And of course, these facilities enable you to generate revenue which must be taken into consideration in order for you to obtain the most accurate image possible of your return. We also mentioned some potential costs in the previous paragraph.

So, to recap: in order to calculate your GOPPAR, you need to work out your operating profit, which includes on one hand the revenue brought in from your accommodation and from your other points of sale, and on the other hand the costs linked to these operations. Then, divide this figure by the number of available rooms you have.

In concrete terms, this is how to work out the GOPPAR for your establishment:

Number of rooms 60
Marketing period (days) 365
Number of rooms available yearly 21900
Revenue generated by department
Accommodation (based on an average sale price of between €80 and €90/night for an average yearly occupancy rate of 80%) 1 500 000 €
Restaurant services/catering(Breakfast, room service, bar…) 800 000 €
Other departments (MICE, spa & fitness…) 200 000 €
Total revenue 2 500 000 €

Now let’s look at the costs incurred by these operations:

Accommodation (based on outlays of up to 20% of accommodation revenue) 300 000 €
Restaurant services/catering (based on outlays of up to 40% of restaurant services/catering revenue) 320 000 €
Other departments 60 000 €
Total expenditure 680 000 €
Gross operating profit (GOP) 1 820 000 €
GOPPAR 83

So now you’ve seen a simplified breakdown of how to calculate GOPPAR. Of course, there is a range of sub-criteria for revenues generated as well as expenditure.

Assessing your profitability on a regular basis gives you the opportunity to identify your strengths and weaknesses. For example, ask yourself why your restaurant is losing profitability from year to year: is it because of an investment made to improve your kitchen facilities, or due to a decrease in the number of covers? As for your rooms, you may be pleasantly surprised to see that the revenue brought in, as opposed to expenditure, has seen a sharp increase, which is surely the result of the implementation of a coherent pricing strategy and proper management of rooms sold through OTAs.

In order to obtain an overall view and take things even further, analyse your online reputation. Has it increased alongside your GOPPAR? Ask yourself whether the investments made to renovate your hotel have had a positive impact on your reputation with clients. It is not surprising if a growth in reputation leads to an increase in prices and in other indicators which stem from this. There are several ways of measuring your hotel’s performance, such as ADR (Average Daily Rate) and RevPOR (Revenue Per Occupied Room), amongst others. Depending on the size of the premises, the rooms available, the sales points you have to offer and, of course, the costs involved in the overall operational functioning of your hotel, take the time to examine this data in order to maximise your hotel’s efficiency.

As just mentioned, your online reputation can indirectly help you to improve your GOPPAR. But how? By carrying out the calculations we have outlined, you can identify whether any of your operations are stalling from year to year. Unfortunately, these figures cannot tell you whether it is bad quality linen which is responsible for the fall in occupancy rate, or whether the decline in custom at breakfast is due to there being no hot buffet. Regular reviews from clients can, however, help steer your attention towards any problems highlighted.

All of these indicators are therefore linked, and must be analysed seriously in order for you to understand not only where your competitive advantages lie, but also the cause of any shortfall.