GOP — Gross Operating Profit

GOP Explained

Gross Operating Profit is the metric that answers the most fundamental question in hotel asset management: How much money does this hotel actually make from its operations? Unlike revenue metrics such as RevPAR or TRevPAR, which measure top-line performance, GOP looks at what remains after all the costs of running the hotel have been paid. It is the clearest indicator of management effectiveness because it captures both the ability to generate revenue and the discipline to control costs.

The importance of GOP in hotel finance cannot be overstated. It is the basis for management fee calculations (most hotel management agreements set the incentive fee as a percentage of GOP), the primary metric in owner-operator performance discussions, a key input for hotel valuations (capitalised GOP or GOP-based multiples are standard valuation methods) and the reference point for budgeting and benchmarking. When a hotel owner evaluates whether to retain or replace a management company, GOP trend analysis is typically the first and most decisive piece of evidence reviewed.

GOP follows the structure defined by the Uniform System of Accounts for the Lodging Industry (USALI), now in its 12th edition. USALI provides standardised departmental and expense categories that allow meaningful comparison across properties, chains and markets. This standardisation is critical: without it, comparing the profitability of two hotels would be as unreliable as comparing their ADRs using different revenue definitions. Every hotel finance professional, asset manager and investor works within the USALI framework, and understanding GOP requires understanding this structure.

How GOP Works

GOP = Total Revenue, Total Operating Expenses More specifically: GOP = Total Revenue, Departmental Expenses, Undistributed Operating Expenses Example: A 150-room hotel generates £8.2 million in total revenue. Departmental expenses (rooms, F&B, spa, other operated departments) total £4.1 million. Undistributed operating expenses (admin, sales & marketing, property operations, IT, utilities) total £1.6 million. GOP = £8,200,000, £4,100,000, £1,600,000 = £2,500,000 (30.5% GOP margin)

USALI Departmental Structure

Operated departments are the revenue-generating divisions of the hotel, each with its own P&L. The rooms department typically delivers the highest departmental profit margin (70–80%) because the variable cost of servicing an occupied room is relatively low. F&B departmental profit margins are significantly lower (15–30%) due to food cost, beverage cost and labour intensity. Other operated departments, spa, golf, parking, telecommunications, vary widely in their profit contribution.

Each department’s profit is calculated as department revenue minus direct departmental expenses (labour, cost of goods, operating supplies, commissions). The sum of all departmental profits feeds into the GOP calculation. This structure enables precise accountability: the rooms department answers for its costs, F&B for its costs, and so on. Undistributed expenses, those that serve the entire hotel rather than a single department, are deducted separately.

Undistributed Operating Expenses

Administrative and general (A&G) includes management salaries, legal and accounting fees, credit card commissions, technology licences and general office expenses. Sales and marketing covers the commercial team’s salaries, advertising spend, brand contributions (for managed or franchised properties), loyalty programme costs and distribution technology fees. Property operations and maintenance covers preventive and reactive maintenance, grounds keeping and building systems management. Utilities (energy, water, waste) and IT (infrastructure, software, support) round out the undistributed categories.

These undistributed expenses are sometimes underestimated in budgeting because they lack the direct revenue linkage of departmental costs. However, they represent 20–30% of total revenue in a typical full-service hotel and are a major determinant of GOP margin. Hotels that manage undistributed costs tightly, through energy efficiency programmes, technology consolidation, procurement optimisation and lean administrative structures, consistently achieve superior GOP performance.

GOPPAR, GOP per Available Room

To enable comparison across hotels of different sizes, the industry uses GOPPAR (Gross Operating Profit per Available Room). Like RevPAR for revenue, GOPPAR normalises profitability by the number of rooms available, making it possible to compare a 100-room boutique property with a 500-room convention hotel on equal terms. GOPPAR is calculated by dividing total GOP by the number of available room nights in the period. It is increasingly used alongside RevPAR in management contracts, benchmarking reports and investment analyses.

GOPPAR = GOP / Available Room Nights Example: The hotel above with £2,500,000 GOP has 150 rooms, yielding 54,750 available room nights annually (150 × 365). GOPPAR = £2,500,000 / 54,750 = £45.66 per available room night

Practical Example

In practice, this concept only creates measurable value when your hotel links it to clear operating routines, owner-level KPIs and a realistic implementation roadmap. Define one concrete use case, measure baseline performance, roll out in short cycles, and review results monthly with Revenue, Commercial, Operations and Tech in one steering rhythm.