Gross operating profit (GOP): what a hotel earns from running itself

1. 1Choose the period, usually a month, and use the same one for every line.
2. 2Add up the total revenue: rooms, food and drink, banquets, laundry, transfers, the spa and anything else guests pay for, all without tax.
3. 3Take off each department's own costs. For rooms: housekeeping and front office wages, linen, guest supplies and the cost of selling the rooms, booking-site commission included. For food and drink: the food, the drink, and the kitchen and service staff. What is left is the departments' profit.
4. 4Take off the undistributed costs, the ones that serve the whole hotel rather than one department: administration and accounts, sales and marketing, repairs and maintenance, electricity, water and fuel, and computer systems.
5. 5What is left is gross operating profit. Divide it by total revenue and multiply by 100 for the GOP margin: the share of each rupee of revenue that stays as operating profit.

Read the margin beside the month before and the same month last year. A margin that falls while revenue rises means the costs grew faster than the sales.

HSMAI's glossary calls gross operating profit the profit from all controllable revenues and expenses, and says it is used to judge the hotel and its management team because what goes into it is within their control. Everything else comes after it, in a set order.

• Above the line, in GOP: every department's revenue and its own costs, its staff's wages included, and the hotel-wide running costs a manager can change, such as administration, sales and marketing, repairs, power and water, and systems.
• Just below it: a management company's fee, if one runs the hotel for you.
• Below that: rent for the land or the building, property tax and insurance, which HOSPA describes as generally outside the control of the hotel's management team.
• Then EBITDA, earnings before interest, tax, depreciation and amortisation, and under it a reserve for replacing furniture and equipment.
• Last of all: loan interest, depreciation and income tax, and what is left for the owner.

This order is the one set out in the Uniform System of Accounts for the Lodging Industry, USALI, which EHL Hospitality Business School calls the standard structure for financial reporting in hospitality. A small hotel's accountant may lay the accounts out differently: ask for gross operating profit as a line of its own, every month.

GOP is a sum of money, so a bigger hotel nearly always has a bigger one. To compare months with different numbers of nights, or your hotel with another, divide it by the rooms you had to sell: that is GOPPAR, gross operating profit per available room.

RevPAR shows how well your rooms sold. GOP shows how much of all the hotel's revenue stayed after running it. A month can raise RevPAR with deep discounts and long hours and still lower GOP, which is why owners read the two together.

Below GOP, net operating income takes off the costs of owning the building as well, such as rent, property tax and insurance. That is the figure a buyer, a valuer or a bank asks for.

• Whether the hotel makes money for its owner. Rent, loan interest and income tax all come after GOP, and they can take most of it.
• Which department earned it. Read each department's own profit too: a busy restaurant can carry a weak month for rooms, or hide one.
• Whether costs were cut in a way that will cost you later. Repairs left undone raise this month's GOP and lower next year's.
• How you compare with the hotels around you. Their accounts are private, so most hotels compare their prices and rooms sold instead, through the average rate index and the market penetration index.

• Price each night by how busy your town will be. A higher price for the same room costs little more to deliver, apart from commission, so most of it reaches GOP.
• Win more bookings on your own website. Every booking a booking site sells costs you its commission, and that comes straight off GOP.
• Check what each booking site sells your room for. A site selling below your website brings in guests at a lower price and charges a commission on top.
• Plan staff rotas by the rooms already sold for each coming night, not by habit.
• Read electricity, water and fuel each month against the rooms sold, so a rise shows before the year is out.
• Look at the restaurant and banquets on their own. Food and drink that loses money lowers GOP however full the rooms are.