GOPPAR (Gross Operating Profit Per Available Room) - Best Measurement of Success

Revenue Management continues to change rapidly. The days of "right room, right person, right price at right time" have long disappeared. So how do you really measure success at the property?

In the past General Managers looked at occupancy. "We need heads in beds to stay afloat!" was the battle cry in many a property. "If we have people staying with us, we will have paychecks to live by." There was a constant drive for pushing the guest in the door at all cost, filling the beds to capture any revenue possible. Then...GMs realized that they were possibly losing money.

"ADR, I need some more ADR!" became the new charge for properties. "I have a good asset here and its worth $X per night!" Owners and managers alike loved the ADR. Having a high ADR, or Average Daily Rate, gave you status. The property was doing well and that's all we need to know....but...

What if we look at how the two mix? "The right, room at the right price at the right time!" was the next mantra of the industry. We need RevPAR, Revenue Per Available Room, "now that will measure success"! Looking at the balance between occupancy and ADR made hotels look at how they really were performing...on the top line.

Now-a-days, the margins are getting ever closer and with more and more rooms being sold at net or wholesale rates, it's ever so important that properties look beyond the top line and see how their bottom line is effected by the decisions they make. GOPPAR, or Gross Operating Profit Per Available Room solves that need and gives a valuable look at how a property is truly performing. You can't take RevPAR to the bank, but you can take profit!

What is GOPPAR?

GOPPAR is the new way to look at Revenue Management and see how you are really performing as a property. GOPPAR, Gross Operating Profit Per Available Room, is the best way to look at a property's performance and make adjustments that impact the best interests of what you are trying to achieve. GOPPAR allows you to look at what are you making, how are you driving it and how does it affect the outcomes of the property.

Revenue Management is the mastery of the basic laws of economics: supply and demand and price and value. When these variables are optimized, Revenue Management performs at its best. GOPPAR allows us to apply the laws of economics to a complete drill down of the process of Revenue Management and make adjustments not only on achieving the top line but aligning it with the bottom line as well. From an ownership perspective, GOPPAR allows you to see what the value of your asset is at any given time. A hotel is really two assets in one; a real estate asset and an operating (and hopefully profitable) business.

GOPPAR is really a way to evaluate your true business performance and make adjustments accordingly. There are many costs that go in to operating a hotel, personnel, utilities, insurance, mortgage, etc. In addition, there are costs we tend to "overlook" when we consider overall performance. Commissions, net rates, booking fees, and the such are all included in the cost of sale as well. Many Director of Sale's view some of these costs as marketing fees or one time expenses, and they all still play a role in the profit of a room. In addition, these costs hit usually on one day and there is a need to spread them out so they can be truly analyzed and evaluated on the impact they have on costing of sale.

How do you measure GOPPAR?

GOPPAR is a formula of taking the GOP at the end of the month or season and applying it across all days. A mathematical equation is necessary to determine how the GOP is divided so that shares are given equally. Then when the total GOPPAR is determined for the time period, it needs to be compared to individual day by day numbers to determine what was good GOPPAR day and what was a bad one. From there, reviewing the segments that produced both directions can lead you to make better, smarter and more profitable decisions going forward. The bottom line becomes the measurement instead of always look towards the top.

When reviewing GOPPAR, the property needs to realize that GOPPAR is based of statistics and all statistics get better and more accurate as time goes one. The more data, the better the answers and the better the answers, the better the decisions...ultimately the better the profit. The good thing is that GOPPAR is able to be back filled to you're your position now and in the past. GOPPAR is based of numbers you should already have in history such as dailies, month end reports and ledger reports.

Who looks at GOPPAR?

The entire Revenue Management team needs to look at GOPPAR and how they can manage it better. From the sales expenditures to the types of business booked. Even the housekeeping managers should know how they impact GOPPAR. When you find a solid GOPPAR number for your property, you'll be able to determine with greater accuracy the number of rooms needed to turn in order to maximize profit. Many hotels know how many rooms a housekeeper can turn in a day, but they don't know that there is a number that also corresponds that allows you to know how many rooms you should take to maximize profitability. "If I take one more room, I need to take "X" to maximize profit.

Ownership should look at GOPPAR on a regular basis and be asking the property about it. This allows them to be "involved in the business" without being "in the business". This keeps them out of the way of the operations of the property and still allows them to discover and ask intelligent questions around performance. In addition, ownership should look at the GOPPAR and, if they have multiple properties, do a total portfolio GOPPAR and this will allow them to make balanced decisions on renovations, capital spending and closures, etc.

Finally, the controller needs to see GOPPAR and what its trends are doing. They are the ones "writing the checks" and they know this end of the property inside and out. They can give some of the best valuation on what makes the property profitable and what makes it not.

What is a good GOPPAR?

Unfortunately, there is not a "good number" for GOPPAR. The values change by property and market. Comparison over time is what makes this number useful. A good GOPPAR is one that is rising and one that can be anticipated.

GOPPAR has shown that "perfect fills" are no longer a good measure either as the optimal profitability of any given property lies between 95% and 97% occupancy. By hitting this occupancy, you more than likely spent the right amount of money to get the right number of rooms filled and you had the right price on the units you sold creating the best profitability for the property.

Source: Hotel Business Review