Do you know what the Goppal model is?
Revenue management, also called yield management, is the main focus in Hospitality.
Room nights being a perishable good it is of vital importance selling them for the highest room rate possible before their sudden demise. Let’s call it what it is: rent revenue management. Being highly focused on this narrow task hotels will miss out on maximizing efficiency and secondary revenue sources, and are not aware enough of the dependency between those sources.
The purpose and proposal is to show the possibilities for improved daily performance management by introducing a GOPPAR model that intrinsically contains many departmental KPIs, including the most used ones, Occupancy, ADR and RevPAR. The model can easily be tailored and expanded depending on hotel specifics.
The GOPPAR Model is derived by translating the gross operating profit (GOP) calculation into an equation containing many useful KPIs instead of numbers that by themselves are not really useful for performance monitoring or benchmarking.
Let’s considerate the gross operating profit (GOP) derived as the sum of all operational revenue (Rev) minus all operational costs, split into variable costs (VC) and fixed costs (FC).
Let’s considerate the gross operating profit (GOP) derived as the sum of all operational revenue (Rev) minus all operational costs, split into variable costs (VC) and fixed costs (FC).
The first part (the sum of revenue minus variable costs) is the gross profit (GP) and the last item is the sum of all fixed costs (FC). When translating into the KPI enriched equation for GOPPAR, GOP per available room, we need to:
– reformulate revenue minus variable costs using a variable for the gross profit margin,
– replace revenue items by the product of the average daily spending and the number of booked room nights,
– divide the equation by the inventory of room nights. Beside its total, which is the notorious gross operating profit per available room (GOPPAR), all variables are useful for performance monitoring. Margins (m) for the different revenue sources are indicators for efficiency, average daily spending (ADS) figures are related to pricing and demand which are giving valuable insights into customer buying and marketing effectiveness, and all items of fixed costs per available room (FCPAR) are useful for longer term analysis and benchmarking of the overall efficiency of the business. Occupancy (Occ) of course is the center KPI for marketing and strongly correlates to the average daily rate (ADR) which in the model is referred to as ADS rent, the average daily spending per occupied room related to rent. Implicit KPIs are RevPARn, which is the product of Occupancy and ADSn, and the net RevPAR (nRevPAR) being the product of RevPARn and its margin mn. And so on…
– reformulate revenue minus variable costs using a variable for the gross profit margin,
– replace revenue items by the product of the average daily spending and the number of booked room nights,
– divide the equation by the inventory of room nights. Beside its total, which is the notorious gross operating profit per available room (GOPPAR), all variables are useful for performance monitoring. Margins (m) for the different revenue sources are indicators for efficiency, average daily spending (ADS) figures are related to pricing and demand which are giving valuable insights into customer buying and marketing effectiveness, and all items of fixed costs per available room (FCPAR) are useful for longer term analysis and benchmarking of the overall efficiency of the business. Occupancy (Occ) of course is the center KPI for marketing and strongly correlates to the average daily rate (ADR) which in the model is referred to as ADS rent, the average daily spending per occupied room related to rent. Implicit KPIs are RevPARn, which is the product of Occupancy and ADSn, and the net RevPAR (nRevPAR) being the product of RevPARn and its margin mn. And so on…
If you are curious and would like to know something more regarding this Theory it’ s sufficient you’re searching online for the very useful and interesting book of Mr Erik Hoogenboom.
Now the problem is : I think that the most of the people working in the Hospitality Industry are not Revenue or Yeld Manager like me but simply very interested to this item. And if you per case are not a SuperMan in the mathematic calculation (like me :), then you should find another solution to be able to manage your structure in the best way possible…Our/My Offer could be so :
– a good balance between quality/price
-point expecially on the international guests…not only from China (because they love travelling but at low cost 🙁
-continue monitoring your Online reputation, I think that the Customer Satisfaction is one of the way to your Success and to create Buzz…
-Flexible rate is a standard decision, depending on the offer/request you have…on the season you’re working…
– On which Target should we point ?? If you want to focus your Business on the Business Travelers, then your offer should have high standard quality, because we know in advance (or it should be so) that they’re insensitive to the rate but very pretentious…
– Depending on the costs you have, calculate your bottom/ rack rate, considering your Competitors (the other Hotels around you), the ranking they have, the prices they offer, the location where your Business is…
-Possibly don’t sell everything too in advance…you could lose in this way much money…I think you should sell possibly the 60% of your rooms and the rest a little bit late…expecially if you have many requests for a certain date…
– Respect the Rate parity…between your Booking engine/ OTA
– Some services are considered standard and free of charge, like f.i. a very speed Wi-Fi service, some gadgets in the rooms, a good american breakfast buffet
Now the problem is : I think that the most of the people working in the Hospitality Industry are not Revenue or Yeld Manager like me but simply very interested to this item. And if you per case are not a SuperMan in the mathematic calculation (like me :), then you should find another solution to be able to manage your structure in the best way possible…Our/My Offer could be so :
– a good balance between quality/price
-point expecially on the international guests…not only from China (because they love travelling but at low cost 🙁
-continue monitoring your Online reputation, I think that the Customer Satisfaction is one of the way to your Success and to create Buzz…
-Flexible rate is a standard decision, depending on the offer/request you have…on the season you’re working…
– On which Target should we point ?? If you want to focus your Business on the Business Travelers, then your offer should have high standard quality, because we know in advance (or it should be so) that they’re insensitive to the rate but very pretentious…
– Depending on the costs you have, calculate your bottom/ rack rate, considering your Competitors (the other Hotels around you), the ranking they have, the prices they offer, the location where your Business is…
-Possibly don’t sell everything too in advance…you could lose in this way much money…I think you should sell possibly the 60% of your rooms and the rest a little bit late…expecially if you have many requests for a certain date…
– Respect the Rate parity…between your Booking engine/ OTA
– Some services are considered standard and free of charge, like f.i. a very speed Wi-Fi service, some gadgets in the rooms, a good american breakfast buffet
But since this article is becoming too long, I’ ll write a second article with the other part of my ideas and theories.
Thanks!
Virtual assistant in the Hospitality and Web sector on behalf of extra-hotels facilities or web agencies in Italy or abroad.
Blogger on Httclub.com, which focuses on Hospitality Travel and Tourism or Web marketing.
Blogger on Httclub.com, which focuses on Hospitality Travel and Tourism or Web marketing.
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Hey There. I found your blog using msn. This is a really
well written article. I’ll be sure to bookmark it and come
back to read more of your useful information. Thanks for the post.
I will certainly return.
Thanks a lot for your feedback. Appreciate it! Luisa