Move over RevPAR, there are finally new and better hotel performance metrics in town.
NB: This is an article from myDigitalOffice
While top-line metrics like Revenue Per Available Room (RevPAR) remain widely used benchmarking measurements across the hotel industry, there has been a collective push from hoteliers over the past few years to standardize the use of bottom-line metrics like Gross Operating Profit Per Available Room (GOPPAR) that more accurately portray the health of a hospitality business.
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From operators looking to compare hotels in their portfolio, to owners benchmarking against their comp set, to investors looking to truly evaluate a hotel’s potential returns, more hoteliers are looking beyond RevPAR and searching for a true indicator of a business’s profitability.
“Really everyone in the industry is moving toward profitability as a new measurement,” says Joseph Rael, senior director of financial performance at STR, one of the industry’s leading providers of market data on the hotel industry worldwide. Rael was instrumental in the launch of STR’s Monthly P&L Report in March 2020, which just so happened to be a pivotal time for hoteliers to gain more insight into the true health of their businesses.
For the time being, RevPAR continues to be a standard measurement that most hotel data analysts can access and understand. But, there are many limitations to RevPAR as a standalone metric that make it less useful in certain circumstances.
Of course, top-line metrics like Occupancy, ADR and RevPAR don’t take into account the various costs of running a hotel business. A hotel might have a high RevPAR but still not be profitable if its expenses are high. Another limitation of RevPAR is that it only considers room revenue, without taking into account other increasingly important revenue streams such as food and beverage, spa, or conference and event space.
Therefore, it is important for hoteliers to take the next step of calculating costs and expenses and subtracting them from the top-line revenue numbers to arrive at more descriptive profitability metrics, which will give them a more complete understanding of a hotel’s financial performance.
Top-Line vs. Bottom-Line Metrics
A hotel’s revenue can be high, but if the costs of running the hotel are also high, then the profit may be low or even negative. Conversely, a hotel may have lower revenue but higher profit if it is able to control its costs and expenses effectively.
Measuring profit allows hoteliers to understand the true financial health of their business and make informed decisions about pricing, operations and investments. Profitability ratios such as gross profit margin, operating profit margin and net profit margin provide insights into the efficiency and profitability of a hotel’s operations.