From time immemorial, revenue per available room, or RevPAR, has been the go-to key performance indicator in the hotel industry. A simple calculation of average daily rate and occupancy rate, it is often thought of as the barometer of health for a hotel by those who work in the industry and those who make a living analyzing it.
Right or wrong, it has obtained monolithic stature. Is it time for it to be shattered?
Most scholarly studies note limitations in the research. These are weaknesses within a research design that may influence outcomes and conclusions of the research itself. This could be due to the sample size or an array of other shortcomings.
When looking at the totality of a hotel, RevPAR has its limits. Why? For one, and most glaring, it only measures revenue derived from rooms. And though room sales are the greatest source of revenue for a hotel, it is not the only avenue of income.
Though select-service hotels rely almost exclusively on room sales, with a smaller amount of ancillary revenue, full-service hotels have multiple income streams beyond rooms: food and beverage, conference and banqueting, spa/gym, golf, parking, dry cleaning services and more.
As the hotel industry drives the recovery forward, understanding and getting a firm hold on profitability has never been more essential. And it is why a focus on gross operating profit per available room, or GOPPAR, is the one key performance indicator that delivers that insight and why RevPAR just does not always cut it.
What is GOPPAR and Why It Matters
GOPPAR measures how much “operating profit” in dollars is being made from each room available in a hotel. An an index, it expresses how well an asset is being yielded relative to its competitive set of hotels. Creating the index is straightforward and defining the components of the index, in order to better understand the results and the opportunities, is the crux of this piece.
No discussion of GOPPAR can be had without a nod to its close sibling, RevPAR, a simple equation that combines occupancy percentage and average rate (for example: 75% occupancy x $200 average rate = $150 RevPar). The RevPar index is a measurement of how much room revenue a hotel is producing relative to the defined competitive set of hotels within a market. In other words, how big is its slice of the pie – given its size – compared to what it should be (e.g., number of rooms)?
In order to bring this analysis to life, I used real data from 2019 provided by global profit and loss data company, HotStats, a leader in revenue and expense insight.