Gross Operating Profit, or GOP, is a hotel KPI that signals the property’s profits after subtracting operating expenses. It is a useful indicator of the profitability of a hotel’s operations and should be calculated regularly for comparisons to the previous year’s GOP. A hotel’s GOP can also be compared to reported GOP for competitors and metrics for industry averages.
What is Gross Operating Profit (GOP) For?
GOP is used to calculate a hotel’s profits before accounting for the indirect costs associated with the production of those profits. Examples of those costs include interest payments and tax. Some examples of expenses included in a calculation of gross operating expenses include costs of goods sold, costs of raw materials, rent, housekeeping costs, food and beverage costs, and other overhead expenses — which other hotel KPIs such as GOPPAR do account for.
Benefits of Gross Operating Profit (GOP)
GOP is a valuable KPI for hotels to evaluate year-to-year operational performance. One of the major benefits of calculating Gross Operating Profit (GOP) is for the purpose of internal comparison. For example, the GOP for the previous year can be compared to the GOP for the current year to give revenue managers an idea of whether operational efficiency has improved or declined.
Limitations of Gross Operating Profit (GOP)
All the expenses that are necessary to keep a hotel running must be included in the calculation to achieve effective accuracy. However, these expenses do not include all of a hotel (or company’s) costs. Some critics argue, then, that the GOP isn’t an accurate measurement of a company’s profitability because it fails to account for all the costs incurred by the business.
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How is Gross Operating Profit (GOP) Calculated
GOP is calculated by subtracting Gross Operating Expenses from Gross Operating Revenue. Gross Operating Expenses take into account all expenses necessary for hotel operations. Gross Operating Revenue accounts for all revenue generated from the hotel’s primary business activities.
Example of Gross Operating Profit (GOP) Calculation
GOP = Gross Operating Revenue – Gross Operating Expenses
Gross Operating Revenue = $4,380,000
Gross Operating Expenses = $1,460,000
GOP = $4,380,000 (Revenue) – $1,460,000 (Expenses) = $2,920,000