RevPAR gets all the love, but it’s a vanity metric that blinds the industry to its bigger problems, such as the cost of running a property.
NB: This is an article from Cloudbeds, one of our Expert Partners
Our industry loves reporting on Occupancy, Average Daily Rate (ADR) and Revenue Per Available Room (RevPAR). Thanks to a record year of “revenge travel,” those metrics gave us much to celebrate.
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In 2022, the U.S. hotel industry reported that the average daily rate and revenue per available room were the highest for any year on record, despite occupancy levels remaining flat, and is projected to grow in 2023 and 2024.
While these numbers might make us feel warm and fuzzy, it’s only a top-line view and not the entire picture. When RevPAR is taken out of context, it’s nothing more than vanity metrics that blind our industry to the bigger problems – like rising costs of running a property, which negatively impacts guest experience.
For reasons I can’t explain, few people want to talk about what it takes to run a profitable hotel. Hoteliers could have the world’s highest RevPAR, but if they also have the world’s highest cost to run that business and power that room, it’s irrelevant. The industry focuses on RevPAR specifically because benchmarking software can’t automate the calculation of a hotel’s gross operating profit. A large majority of this industry doesn’t pay attention to that data set. I understand why given the state of the disparate technology landscape that plagues the lodging industry. The data that would inform profitability gets lost between the fractured technologies that don’t talk to each other, obscuring the metric that would tell us about the health of our industry and its path toward recovery.
The metric I wish more people would pay attention to is GOPPAR, (gross operating profit per available room) because it’s the funds a hotelier has to work with. This might seem like I’m stating the obvious, but I’ve spent 10 years as an outsider to this industry and I cannot figure out why GOPPAR doesn’t have its own index the way RevPAR does. It’s the money they have to reinvest back into their business and improve it. However, the gross operating profit tells a far less exciting or hopeful story, which might be why it’s ignored.
In real terms factored for inflation, GOPPAR flatlines over the next few years. Though prices and demand are at all-time highs, costs are through the roof — rising labor costs, supply costs, property maintenance costs, etc.
You can’t win at what you don’t measure. If we want hoteliers to be successful, we must start making decisions based on the data that accurately measures the success of their properties. That’s GOPPAR. Add in the difficulty of today’s macroeconomics landscape, GOPPAR will help us make informed changes to the overall infrastructure of our industry so that a hotelier’s P&L actually works. This is an important wake up call for the hospitality industry to get serious about efficiency and the bottom line. Here are three predictions that we think this will drive:
Emphasis on TRevPAR (Total RevPAR) over RevPAR.
If a hotelier is no longer thinking about RevPAR, they transition to thinking about total revenue per available room to have a complete top-line view of their business. Where RevPAR primarily considers solely revenue generated from selling rooms, TRevPAR takes into account all revenue generated from the property. Everything from additional guest services, to in-stay purchasing, happy hours at the bar, to a flash-sale local tour impacts this metric. This is an opportunity for lodging businesses to get creative about how they maximize revenue from their entire space (not just rooms), as well as through add-ons, upgrades and other ancillary services. For this to work and become programmatic, it requires technology.
A day of reckoning for certain brands.
Brands run their own business and care first about their top line. As a result, they fail to provide the tools that will help hoteliers operate more effectively. Brands just want the 15% cut that their loyalty engine delivers to the franchisee, and yet hotel loyalty means so little these days (a topic for another day). In our analysis, brand franchise fees make up a large bulk of top-of-funnel operating costs (e.g. Cost of Acquisition). During the pandemic, top-of-funnel search was democratized, enabling hoteliers to publish their offers directly. This allowed them to bypass stringent and often cost-intensive booking sources provided by the brands. Thanks to Google and other leading search providers, an independent hotel can acquire a new customer at the fraction of the cost of a branded hotel.
But that’s not all: franchisees are often required to use outdated but backwards compatible technology which requires costly mainframe support and licensing fees. Franchisee owners are hamstrung by legacy technology that’s ineffective at best. Going independent can create a boost in profitability. In the past, brands have provided a technological advantage when it comes to marketing and distribution, but new tech solutions available now make it easy for properties to go independent and compete at the same level as brands.
The competitive advantage of technology.
To actually impact GOPPAR, hotels have to let technology help them. When they turn their attention to GOPPAR, they might implement technology in new ways to overcome some of the things they cannot control like inflation, sky-rocketing utilities or rising labor costs. While they could pass that onto their customer (which happens in many cases but again, that just shows a rising ADR), at the end of the day, they haven’t improved their business. It’s just passing the buck. Instead, utilizing technology for everything from guest acquisition, direct bookings, mobile door locks, guest messaging tools, housekeeper scheduling, contactless check-in, and modern payment systems, will make their entire property a whole lot less expensive to operate by reducing labor costs and streamlining business operations.
Hoteliers deserve the absolute best technology that will enable them to accelerate their GOPPARand have healthy and profitable businesses that delight guests. Turning our attention from RevPAR to GOPPAR will help get them there.
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NB: This article was originally published on HospitalityTech