GOPPAR is an important KPI in the hospitality industry because it helps understand how well your property is performing. It is particularly useful for getting a comprehensive picture of the property’s performance looking at the amount of rooms available instead of the amount of rooms sold. Furthermore, it considers gross operating profit so that you can get a better understanding of the effectiveness of your hotel.
GOPPAR is fundamental for revenue managers to establish whether the hotel’s operations are yielding the expected returns. In this article we will look at what GOPPAR is, how to calculate the formula, and why your hotel should focus on this metric.
What is GOPPAR?
GOPPAR, or Gross Operating Profit Per Available Room is a key performance indicator that helps properties to determine their performance by calculating the gross operating profit in comparison to the amount of hotel rooms available. This KPI is used by revenue managers to measure the operating success of the hotel and get a better understanding of the hotel’s true competitive performance.
GOPPAR calculation allows hoteliers to better analyze operations, overall profits, the amount of cash flow, and the amount of expenses paid out by the business. It is the key to profitability because you can understand how to optimize your bookings in order to maintain a positive cash flow, keeping operating costs and debts as low as possible.
How to calculate the GOPPAR formula
This metric can be calculated by using the following formula:
GOPPAR = Gross Operating Profit (GOP) / Total available number of rooms
It should be noted that in this specific formula, hotels can account for different revenue sources that go beyond just rooms whereas GOP on its own does not take into account operating expenses.
On the other hand GOPPAR takes into account other important revenue sources like the total departmental expenses, such as rooms expense, food and beverage and other operational expenses, as well as total undistributed expenses – administrative, sales, marketing, utilities, operations and maintenance, among others.
Why should you focus on GOPPAR and why is this KPI important?
GOPPAR is crucial to monitor trends in a hotel’s performance and in doing so you can better determine your operational strategy. Using hotel data analytics is crucial to make informed decisions, and increase profits when it comes to implementing this strategy. With a proper use of data, you can track performance and make informed decisions with real-time information as part of Mews’ hotel property management system platform.
This KPI allows you to measure your property’s essence and operate more effectively. For example, during periods of low demand you can use this metric to make strategic decisions such as how much staff to employ in order to keep expenses from spiking when demand falls. You can also use the calculation to inform decisions such as pricing strategies.
Furthermore, you can use the GOPPAR index to measure your performance against your direct competition and see how your revenue and expenses compensate each other. You can thereby determine the quick wins that are interfering with profitability and carry out a proper SWOT analysis to improve your properties performance.
Now that you’ve understood the importance of this metric, let’s discuss how this metric can help your hotel run better.
It helps you grow
By allowing you to understand both inflows and outflows of revenue at the same time, GOPPAR gives you the understanding to determine the best growth strategies. Once you have a better idea of where your revenue is going and where it’s coming from, you can decide where to dedicate more resources and see where resources are being over-allocated. This is particularly helpful in times of growth when more money is typically spent.
Since this metric considers all revenue streams, you can use the information to make informed decisions that will ultimately make your property more profitable. Furthermore, it helps prepare for the unexpected such as increased spending and unexpected dips in revenue.
The best way to maximize profitability is to have a robust operational strategy in place which can without a doubt be improved by implementing the learnings from the calculation.
Go above and beyond other metrics
The good news with this metric is that it gives a more complete assessment of the success of a hotel’s operations instead of just revenue generated from rooms. That is to say it includes the total revenue, also known as TRevPAR, across all departments. This includes both food and beverage and other sectors that have big streams of revenue but also represent an important area of spending.
Nonetheless, with a complete understanding of how to balance revenue with expenses you are able to provide a guest experience that corresponds and is within your spending budget.
Manage your budget
GOPPAR allows your property to identify where spending generates returns and where it doesn’t. By identifying the areas where spending is not working out for your property you can decide to ultimately redistribute funds. The success of a property is reflected in its ability to be resilient and reactive to the market trends, no matter if demand changes or new competitors arise that compete with the same market share as yours.
Inform your benchmarking strategy
Building a successful performance strategy starts with benchmarking. As this metric focuses on profit, it’s a great tool to guide your overall strategy. Using GOPPAR as the guide to create a financial performance plan, hotels are more likely to understand exactly which competitors they should have on their radar and fully analyze how their own service level can beat out the competition and sell more rooms than their counterparts.
In this article we’ve looked at one of the most crucial metrics in the hospitality industry. We’ve seen how to calculate the value and why your hotel’s revenue manager should go through the practice of understanding and interpreting this metric. By successfully implementing the learnings implied by this metric, your hotel can increase profitability, understand where to allocate budget and accurately decide the Human Resources necessary to run a successful property operation.
Behind any successful operation is putting into practice knowledge supplied by data analysis to optimize profitability and focus on offering the best service possible so that guest retention is ensured.
16 July 2021
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