GOPPAR
The 30-Second Summary
The Bottom Line: GOPPAR is the hospitality industry's most honest health score, measuring the actual profit a hotel generates per room, not just the revenue it brings in.
Key Takeaways:
What it is: Gross Operating Profit Per Available Room (GOPPAR) is a performance metric that calculates a hotel's profit after subtracting the direct costs of running it.
Why it matters: It reveals a management team's true skill in both generating sales and controlling costs, offering a clearer picture of operational efficiency than revenue-only metrics. It's a powerful tool for spotting a well-run business, a key component of an
economic_moat.
How to use it: Use GOPPAR to compare the true operational profitability of different hotels or brands, cutting through the noise of their financing and ownership structures.
What is GOPPAR? A Plain English Definition
Imagine you own two identical lemonade stands on the same busy street.
Stand A, run by “Flashy Frank,” sells 1,000 cups of lemonade a day at $1 each. That's $1,000 in revenue! It looks incredibly successful. But Frank uses expensive organic lemons, fancy branded cups, and has two helpers. His daily cost for ingredients and labor is $800. His profit is $200.
Stand B, run by “Steady Susan,” sells only 800 cups a day at $1 each. That's $800 in revenue. On the surface, it seems less successful than Frank's. But Susan has a great deal with a local farm for lemons, uses simple, clean cups, and works efficiently by herself. Her daily cost is just $300. Her profit is $500.
Which business would you rather own?
If you only looked at revenue, you'd pick Frank's stand. But if you look at profit, Susan's stand is the clear winner. It's a much healthier, more efficient, and more valuable business.
GOPPAR (Gross Operating Profit Per Available Room) is the hotel industry's version of asking, “How much profit is Susan actually making?”
It's a performance metric that goes one step beyond its more famous (and more superficial) cousin, RevPAR (Revenue Per Available Room). While RevPAR simply tells you the revenue generated per room, GOPPAR tells you the profit generated per room after paying for all the direct, day-to-day costs of running the hotel.
These direct costs, known as “Gross Operating Expenses,” include things like:
The salaries and wages of housekeeping, front desk, and restaurant staff.
The cost of food and beverages sold.
The price of cleaning supplies and guest toiletries.
Utility bills like electricity and water.
Sales and marketing expenses.
Crucially, GOPPAR calculation stops there. It purposely ignores the “big picture” property-level costs like rent or mortgage payments, property taxes, insurance, and long-term depreciation. Why? Because the goal of GOPPAR is to isolate the performance of the management team and the hotel's daily operations. An investor can use it to answer the question: “Setting aside the cost of the building itself, how good is this team at turning rooms and restaurants into actual cash profit?”
In essence, GOPPAR provides a pure, unclouded view of a hotel's operational engine. It's the difference between the money coming in and the money spent to keep the lights on and the guests happy, all boiled down to a single, powerful “per room” number.
Why It Matters to a Value Investor
For a value investor, the pursuit of truth and underlying reality is paramount. We are trained to be skeptical of flashy headlines and surface-level numbers. GOPPAR is a value investor's metric because it cuts through the vanity of revenue and gets straight to the sanity of operational profit.
“Price is what you pay; value is what you get.” - Warren Buffett
This quote perfectly captures why GOPPAR is superior to RevPAR from a value investing perspective. RevPAR is the “price” guests are paying, but GOPPAR is a clearer indication of the “value” the business is creating. Here’s why it’s so critical:
It Prioritizes Profitability Over Popularity: A hotel manager can easily boost RevPAR by slashing room rates to achieve 100% occupancy. The hotel looks busy and successful, but it might be losing money on every guest after accounting for cleaning, staff, and utilities. This is a classic business trap. GOPPAR exposes this folly immediately. A value investor isn't interested in owning a popular-but-unprofitable business; we want to own a profitable one, even if it’s less flashy.
It's a Barometer for Management Quality: Superior management is a cornerstone of a great long-term investment. How do you measure it? GOPPAR is one of the best tools. A management team that consistently grows GOPPAR demonstrates two critical skills:
pricing power (getting customers to pay a good price) and
cost discipline (not wasting money to do it). This combination is the hallmark of a high-quality operation and a potential
economic_moat.
It Aids in Apples-to-Apples Comparisons: Imagine you're analyzing two hotel companies. One, like Marriott, primarily manages hotels owned by others. The other is a
Real Estate Investment Trust that owns its properties outright. Their business models and cost structures are completely different. GOPPAR allows you to compare the operational skill of the Marriott-managed hotel directly against the REIT-owned hotel, because it ignores the financing and ownership costs that differ between them. It helps you identify the best
operators, which is often where the long-term value lies.
It Reinforces the Margin of Safety: Benjamin Graham's core principle of investing is to always leave a buffer between the price you pay and the value you get. A hotel's Gross Operating Profit is its first and most important line of defense. This is the profit pool used to cover all the other fixed costs: debt, rent, taxes, and major repairs. A hotel with a high and stable GOPPAR has a massive cushion. It can withstand an economic downturn, a new competitor, or a rise in interest rates far better than a hotel with a razor-thin GOPPAR. A high GOPPAR, in effect,
is a margin of safety built into the business operations themselves.
How to Calculate and Interpret GOPPAR
The formula for GOPPAR is straightforward and logical.
`GOPPAR = Gross Operating Profit / Total Available Rooms`
To get there, you need two key pieces of information:
1. Gross Operating Profit (GOP): This is the engine of the hotel's profitability.
`GOP = Total Revenue - Gross Operating Expenses`
* **Total Revenue:** This includes all income sources – room rentals, food and beverage sales, conference room rentals, spa services, parking, etc.
* **Gross Operating Expenses:** These are the departmental costs directly tied to generating that revenue. Think of them as the "cost of goods sold" for a hotel. ((This excludes non-operating, fixed costs like property taxes, insurance, depreciation, amortization, and interest payments.))
2. Total Available Rooms: This is the hotel's total capacity over a specific period.
`Total Available Rooms = Number of Guest Rooms x Number of Days in the Period`
So, the expanded formula is:
`GOPPAR = (Total Revenue - Gross Operating Expenses) / (Number of Guest Rooms x Number of Days in the Period)`
Interpreting the Result
A GOPPAR number in isolation—say, $75—is meaningless. Its power comes from context and comparison. A value investor must use it to ask deeper questions.
Trend Analysis (The Time Machine): The most important comparison is against the company's own past performance. Is GOPPAR trending up, down, or sideways over the last 5-10 years? Steady, consistent growth is a sign of a durable, well-managed business. A sudden drop is a major red flag that demands investigation. Did a new competitor open next door? Did operating costs spiral out of control?
Peer Analysis (The Neighborhood Watch): How does a hotel's GOPPAR compare to its direct competitors? You must compare apples to apples. A Four Seasons in Manhattan will have a vastly different GOPPAR from a Holiday Inn Express by the airport. Compare luxury to luxury, budget to budget, and city-center to city-center. A company that consistently posts a higher GOPPAR than its peers likely has a competitive advantage—a better brand, more efficient operations, or a superior location.
The GOPPAR vs. RevPAR Spread (The Efficiency Gap): A fascinating analysis is to track both RevPAR and GOPPAR over time.
Healthy Growth: Both RevPAR and GOPPAR are rising. This means the hotel is increasing its revenue and controlling costs effectively.
The Red Flag: RevPAR is rising, but GOPPAR is flat or falling. This is a classic warning sign. The hotel is filling rooms, but its costs are growing even faster. Profitability is eroding.
The Turnaround: RevPAR is flat, but GOPPAR is rising. This can be a sign of brilliant management. They are squeezing more profit out of the same revenue base through clever cost-cutting and efficiency improvements.
A high and rising GOPPAR indicates a healthy, efficient, and well-managed operation. A low or falling GOPPAR signals potential trouble and requires a much smaller margin_of_safety for any potential investment.
A Practical Example
Let's compare two hypothetical hotel chains looking to attract investors: “The Grand Imperial Hotel” and “The Smart Stay Inn.”
The Grand Imperial is a five-star luxury property, while The Smart Stay is a highly efficient three-star business hotel. We'll analyze their performance for a single year (365 days).
| Metric | The Grand Imperial Hotel | The Smart Stay Inn |
| Number of Rooms | 200 | 150 |
| Total Available Rooms (Rooms * 365) | 73,000 | 54,750 |
| Total Annual Revenue | $30,000,000 | $12,000,000 |
| Gross Operating Expenses | $21,000,000 | $6,500,000 |
First, let's calculate the superficial metric, RevPAR.
Grand Imperial RevPAR: $30,000,000 / 73,000 = $410.96
Smart Stay RevPAR: $12,000,000 / 54,750 = $219.18
Looking only at RevPAR, The Grand Imperial seems vastly superior. It generates almost double the revenue per room. This is the “Flashy Frank” lemonade stand.
Now, let's apply the value investor's lens and calculate GOPPAR.
1. Calculate Gross Operating Profit (GOP):
Grand Imperial GOP: $30,000,000 - $21,000,000 = $9,000,000
Smart Stay GOP: $12,000,000 - $6,500,000 = $5,500,000
2. Calculate GOPPAR:
Grand Imperial GOPPAR: $9,000,000 / 73,000 = $123.29
Smart Stay GOPPAR: $5,500,000 / 54,750 = $100.46
The Insight:
The story is now much more nuanced. While The Grand Imperial's GOPPAR is still higher, the gap is much smaller than the RevPAR gap suggested. The Smart Stay Inn is a remarkably efficient operator. It converts a much higher percentage of its revenue into gross profit.
A value investor might conclude that while The Grand Imperial has a stronger brand and pricing power, The Smart Stay Inn has a superior operating model. If you believe its efficiency is scalable, it might be the better long-term investment, especially if it can be acquired at a more reasonable valuation. GOPPAR allowed us to see past the glamour of high revenue and uncover the underlying operational strength.
Advantages and Limitations
Strengths
Focus on Profitability: Its greatest strength. It moves the conversation from “how much did you sell?” to “how much did you make?”, which is the ultimate goal of any business.
Highlights Management Effectiveness: It is one of the purest indicators of a management team's ability to balance pricing, occupancy, and cost control.
Excellent for Comparison: It provides a standardized yardstick to compare the operational performance of different hotels, brands, or management companies, regardless of ownership structure.
Early Warning System: A declining GOPPAR can signal deteriorating business fundamentals long before the company reports a net loss.
Weaknesses & Common Pitfalls