As a hotel owner, you might sometimes hear abbreviations that pertain to how you’re running your business. GOPPAR is one of those. What does this abbreviation mean, though, and why does it matter for your hotel?
In the following article, we’ll discuss GOPPAR in detail. We’ll talk about what it is, how to calculate it, and also why you should use it as one of your primary KPIs.
GOPPAR is an abbreviation that stands for gross operating profit per available room. In the hotel industry, it is considered to be a KPI, or key performance indicator.
GOPPAR deals with measuring your hotel’s profits. It would be appropriate to say this matters because GOPPAR gives you a very clear picture of your business’s overall health.
It is not uncommon for hotel owners to have various performance metrics that are centered around GOPPAR. Some may even form entire revenue teams to analyze it.
If you want your hotel to grow, having information on hand from studying GOPPAR is a way to do that. Often, you can devise a much stronger business strategy with it.
Hotel owners may already be familiar with the concept of RevPAR. RevPAR is revenue per available room.
RevPAR and GOPPAR are not the same thing. RevPAR is an evaluation of the revenue a hotel generates per available room. GOPPAR, on the other hand, gives you a more comprehensive view. That is because it considers your hotel’s overall profitability inclusive of all revenue streams.
The way you calculate GOPPAR is by dividing your gross operating profit, sometimes abbreviated as GOP, by your hotel’s total available rooms. This is usually abbreviated as TAR.
As a formula, it would look like: GOPPAR = GOP/TAR
GOP is your total revenue, or your total operating expenses. This will include revenue from several sources, including food and beverages, rooms, and any other revenue sources associated with your hotel. You would then deduct all operational expenses, including maintenance, utilities, labor, etc.
A GOPPAR calculator is not completely dissimilar to a RevPAR calculator, which is why these two are occasionally confused with each other. However, a GOPPAR calculator eliminates any expenses or fees from the revenue figure first.
For instance, maybe you want to measure it for a one-year period. We’ll say you have 50 rooms, and there are 365 days in a year. 50 x 365= 18,250.
We’ll say your hotel’s total revenue, which includes revenues from food and beverages, your rooms, and any other revenue streams, totals $3 million. Then, we’ll say total operational expenses, including your employee salaries, maintenance costs, and supplies cost a total of $1.25 million. Your GOP is $1.75 million.
In this case, your GOPPAR would be $1.75 million divided by 18,250. That comes out to about 95.89. In other words, your GOPPAR in the year that you are examining would be approximately $96. Each of your individual rooms is earning you an average profit of $96.
Any way you choose to look at it, GOPPAR is a useful metric. It essentially does two things at once. First, it provides you with the insight of how much money your hotel is generating per individual room. However, at the same time, it reveals any costs associated with generating the revenue.
It would be accurate to say that GOPPAR is one of the most effective ways to analyze your hotel’s performance bottom line. Once you do that, you can start to work on plans to improve it, particularly if you’re not happy with where you determine it currently is.
Hotel owners can monitor their property’s GOPPAR regularly. Doing so means you’re in a prime position to make constant adjustments to your business model. For instance, you might figure out how to effectively cut costs without having any negative impact on the quality of your service.
A hotel owner who is watching their GOPPAR might excel with certain high-level indicators. For example, maybe you see that your average daily rate is doing quite well. However, you might notice you’re seeing too many expenses in other areas.
You might combat this by reducing your number of staff hours. If you know you have a season where you don’t see as many rooms full, there’s probably no reason to be as fully staffed as you would be during the height of the tourist season.
There are many potential benefits of using GOPPAR calculations for your hotel, so it’s worth talking about some of those. Earlier, we mentioned that some hotels have entire finance teams that spend their time calculating GOPPAR and then take steps to improve it.
Such teams might take a hard look at expense and income variables compared against a hotel’s closest competitors. They might monitor operating patterns not just to maximize profit for every hotel, but also for an entire portfolio.
A finance team that indexes GOPPAR might work collectively with development teams. Together, they can demonstrate returns to prospective franchisees, assuming that is your hotel’s business model.
When you have a team working on your hotel’s GOPPAR, or even if you are doing so yourself, you are breaking down profits per room in a detailed and comprehensive fashion. When you do so, you are also able to see whether there are any obvious cost inefficiencies that are having a detrimental effect on your hotel’s ability to make a profit.
Your GOPPAR does not exist in a vacuum. Presumably, you have some close competitors in your geographic area. You can compare your GOPPAR to theirs.
If you own multiple hotels, you can also compare each of those to each other. If you can compare one hotel’s GOPPAR to another that you own, you can probably identify any factors that are leading to one of them underperforming.
You can then look at the feasibility and practicality of some cost-cutting measures. You can also think about some revenue generation strategies.
Benchmarking is another aspect of using GOPPAR that is worth talking about. If you know the GOPPAR of competing hotels nearby, in addition to broader industry standards, you will know where your hotel or hotels stand.
Ideally, you want to compare your GOPPAR to that of similar establishments. By doing so, you will know where you are positioned in the market. You can also identify any potential areas of improvement.
Keep in mind, though, that to do this effectively, you must be sure you have reliable competitor insights. That’s why it might make sense for you to hire a finance or revenue management team to handle this aspect of your data collection if you’re not sure you can handle it on your own.
Improving the guest experience is certainly something that all hotel owners want to be looking at constantly. GOPPAR is one of the best ways for you to do that.
If you have a higher GOPPAR, that can mean guests are having a better experience in your hotel. Conversely, a lower GOPPAR can mean that potential guests are not as willing to book rooms, be enticed by your ancillary services, or purchase any of your upgrades.
If you see lower GOPPAR, you can work on increasing the metric. When you do so, you are indirectly enhancing the various amenities and services you offer.
A satisfied hotel customer is one who is more likely to return, but they are also more inclined to recommend your business to their friends. They will probably leave you some positive reviews online as well. When your GOPPAR improves, it usually means that you’re improving your reputation as well as bringing in more revenue during any designated period.
At all times, you must analyze and interpret your hotel’s financial performance and what it means. The more reliable methods you have of breaking it down, the more likely you can make the slight tweaks or even extensive overhauls required to keep your business solvent.
GOPPAR can certainly be a part of that. When you learn how to calculate it correctly and analyze what it means, you will be getting a comprehensive, in-depth look at your hotel’s health. That is because it includes both your operational costs and revenue at the same time.
You can think of GOPPAR as a holistic understanding of a hotel’s profitability. When you look at it, you’re getting a fast but reliable read of how your business is currently doing, and you will also have an instant comparison point to similar hotels.
You even have the chance to break down GOPPAR in an even more detailed fashion if you think that will be of use to you. While many hotel owners use GOPPAR as a hotel-wide metric, you can also do it for various types of rooms, assuming you have different ones in your hotel.
For instance, you might calculate GOPPAR for suites vs. standard rooms. To do so accurately, you would also have to factor in operational costs, such as staffing, maintenance, and so forth.
Let’s imagine for a moment that you have two different rooms types, like suites and standard rooms, but they are both generating the same revenue. One of them has lower operational costs than the other, though.
The one that has lower operational costs would have a higher GOPPAR. That means it has greater profitability. If you can understand the profitability of individual rooms using this metric, that can guide your marketing strategies. It can change how you price the room and what kinds of promotional efforts you apply to it. It can change your operational adjustments and investment decisions.
You will be able to focus your efforts on improving the GOPPAR for those aspects of your hotel that will have the most impact. Whether you can successfully implement changes based on your GOPPAR calculations and how you choose to react to them can be one of the biggest determining factors in whether your hotel remains profitable.
As a hotel owner, it is always your prerogative which KPIs you want to calculate and focus on. It would be a mistake not to recognize GOPPAR’s importance, though.
If you can set up and use a comprehensive analytics dashboard that gives you constant GOPPAR for your rooms, you can get real-time insights into your revenue streams. This is a data-driven approach that can guide you as a hotelier.
You always want to make informed decisions, and this is one of the easiest ways to do that. You can optimize your room rates and figure out your promotional strategies along with any other individuals who you rely on to help guide these decisions for your business.
A word of caution, though, before you start using GOPPAR for your hotel. Just because you have determined your GOPPAR for your hotel’s rooms for a certain period, that does not mean it will remain the same. This metric is not static. It is fluid, and you can expect it to change over time.
That is why continually monitoring it makes sense. It’s not something you should figure out once and then forget about. You can look at it like taking your hotel’s temperature. It’s going to fluctuate, and it can do so rapidly and dramatically in some instances.
By keeping an eye on it and constantly adjusting your marketing and other strategies in accordance with it, you will be using it in the best way possible. Constant comparisons are a way for you to judge not just how your hotel is doing, but often the hospitality niche in which you operate in a more general sense.
Now you know some of the basics concerning GOPPAR and how much it matters for your hotel. It can be one of the most beneficial KPIs, so it is in your best interest to use it to your advantage if you are not doing so yet.
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