Key takeaways
- In this article, GOI means profit after departmental expenses, while GOP further deducts undistributed expenses.
- USALI calls the departmental level Departmental Income, while GOI is a term commonly used in the industry. Agree on the definition before making comparisons.
- If GOP falls but GOI is normal, the problem lies in undistributed expenses, not with the department head.
GOI (Gross Operating Income) and GOP (Gross Operating Profit) are two margins that are often used interchangeably, yet they offer different perspectives and lead to different decisions. All figures are hypothetical examples for a 5-star resort and do not refer to any real hotel.
The short answer in 30 seconds
- GOI: profit after a department's direct expenses
- GOP: GOI less undistributed expenses
The difference between the two is the central overhead that every department bears jointly.
P&L structure
| Item | % of Revenue | Notes |
|---|---|---|
| Total Revenue | 100% | Starting point |
| (−) Departmental Expenses | −23% | Rooms, F&B, Spa, Other |
| GOI | 77% | Department-level margin |
| (−) Undistributed Expenses | −27% | A&G, S&M, IT, POM, Utilities |
| GOP | 50% | Hotel-level margin |
| (−) Management Fees | −7% | Operator fees |
| (−) Fixed Charges | −2% | Property tax, insurance |
| EBITDA | 41% | Asset-level margin |
| (−) Depreciation & Interest | −31% | Depreciation, interest |
| Net Income | ≈ 10% | Before income tax |
Departmental vs undistributed
Departmental Expenses
- Rooms: housekeeping salaries, linen, room supplies and commission on room sales
- F&B: salaries of chefs and servers, raw materials
- Spa: therapists and products
- Other Operated: guest laundry, telecom, business centre
Undistributed Expenses
- A&G
- Sales & Marketing
- Information & Telecommunications Systems
- Property Operation & Maintenance (POM)
- Utilities, which the 12th edition of USALI expands to Energy, Water & Waste
When using the USALI structure, OTA commission should be classified as a Rooms department expense, not under Sales & Marketing.
Example 1: GOI of the Rooms department
A room at THB 10,000 per night including breakfast
| Item | THB | % |
|---|---|---|
| Room Revenue | 10,000 | 100.0% |
| Housekeeping (allocated) | −800 | −8.0% |
| Linen and laundry | −300 | −3.0% |
| Toiletries | −150 | −1.5% |
| Laundry | −200 | −2.0% |
| Mini-bar restocking | −250 | −2.5% |
| In-room amenities | −100 | −1.0% |
| Breakfast | −400 | −4.0% |
| Departmental Expenses | −2,200 | −22.0% |
| GOI (Rooms) | 7,800 | 78.0% |
Example 2: consolidated P&L
| Item | THB million | % Revenue |
|---|---|---|
| Room Revenue | 200.0 | 80.0% |
| F&B Revenue | 40.0 | 16.0% |
| Spa & Other Operated | 10.0 | 4.0% |
| Total Revenue | 250.0 | 100.0% |
| Room Expenses (22%) | −44.0 | −17.6% |
| F&B Expenses (30%) | −12.0 | −4.8% |
| Spa & OOD Expenses (50%) | −5.0 | −2.0% |
| Departmental Expenses | −61.0 | −24.4% |
| GOI | 189.0 | 75.6% |
| A&G (12%) | −30.0 | −12.0% |
| Sales & Marketing (3.5%) | −8.75 | −3.5% |
| IT & Telecom (2%) | −5.0 | −2.0% |
| POM (4%) | −10.0 | −4.0% |
| Energy (5.5%) | −13.75 | −5.5% |
| Undistributed Expenses | −67.5 | −27.0% |
| GOP | 121.5 | 48.6% |
The 30% F&B expense in this example is a simplified, hypothetical figure. In practice, F&B total costs are usually higher, as they include both raw materials and labour.
Side-by-side comparison
| Issue | GOI | GOP |
|---|---|---|
| Formula | Revenue − Departmental | Revenue − Departmental − Undistributed |
| Perspective | Department level | Hotel level |
| Used to assess | Department performance | Hotel performance |
| Responsible party | Department Head | General Manager |
| Approx. 5-star luxury | 70–78% | 45–55% |
| This example | 75.6% | 48.6% |
Why two margins are needed
Department heads are responsible only for their own department's expenses. It would be unfair to make them bear the electricity bill for the whole hotel or the GM's salary, so their KPIs are tied to GOI.
The general manager is responsible for the whole hotel, so their KPIs are tied to GOP, and GOP is often the basis of the incentive fee in an HMA.
Owners and investors look further down to EBITDA and net income, because management fees, tax, depreciation and interest must be deducted.
A high GOI does not mean a high GOP
| Item | Hotel A (Lean) | Hotel B (Bloated) |
|---|---|---|
| Revenue (THB million) | 100 | 100 |
| Departmental | −22 | −22 |
| GOI | 78 (78%) | 78 (78%) |
| Undistributed | −25 | −38 |
| GOP | 53 (53%) | 40 (40%) |
Hotel B's GOP is 13 percentage points lower even though its departments perform no differently. The cause is usually an A&G function that is oversized for the hotel, marketing with a low ROI, inefficient energy use or duplicated IT. Department heads should not be pressured when the problem does not lie in their departments.
Approximate benchmarks
| Hotel level | GOI | GOP | Difference |
|---|---|---|---|
| Budget / Limited Service | 60–70% | 35–45% | 20–25% |
| Midscale | 65–72% | 38–45% | 25–30% |
| Upscale 4-star | 68–75% | 42–50% | 25–28% |
| Luxury 5-star | 70–78% | 45–55% | 25–30% |
| Ultra-Luxury | 72–80% | 48–58% | 24–28% |
Use these as an initial framework only. Actual values depend on the market, the revenue mix and how expenses are classified.
GOP in an HMA
Hotel management agreements often tie the incentive fee to GOP on a tiered basis. Hypothetical example:
- GOP below 30%: no incentive fee
- 30–40%: 4% of AGOP
- 40–50%: 5% of AGOP
- Above 50%: 6.5% of AGOP
If GOP moves from 49% to 51%, the operator's remuneration rises by 1.5 percentage points of AGOP. Actual terms depend on each agreement.
How to use them in decisions
GOI
- Consider restructuring, outsourcing or closing departments with persistently low GOI, after reviewing the context.
- Pricing when departmental costs rise
- Department head bonuses
- Cost Engineering
- Outsourcing decisions
GOP
- GM evaluation
- HMA Performance Test
- Investor reporting
- Incentive fee calculation
- Refinancing and asset sales
Three points of caution
1. Some departments may have a deliberately low GOI
An attractively priced buffet may lower F&B GOI but draw in room guests and improve Rooms. Look at the whole system.
2. Classification may not be consistent
Hotel chains may allocate Energy or Marketing differently. When comparing, check whether the same edition of USALI is used.
3. Revenue Mix Effect
Resorts with high room revenue usually have a higher overall GOI margin. Compare against a peer group with a similar revenue mix.
Diagnostic when GOP falls
- Check GOI first: if GOI has also fallen, the problem lies in revenue or departmental expenses.
- If GOI is stable but GOP has fallen: the problem lies in undistributed expenses.
| Problem | Possible causes | Approach |
|---|---|---|
| Revenue decline | OCC or ADR drops | Sales push, repricing, channel mix review |
| Higher departmental expenses | Labour, food cost | Renegotiate suppliers, productivity review |
| High energy costs | Inefficient HVAC | Solar PV, LED retrofit, Building Management System |
| High marketing costs | Spend that produces no results | Direct booking push, loyalty program |
| High A&G | Management structure is oversized | Org review, shared services |
Conclusion
GOI is used to assess performance at department level, while GOP is used to assess the whole hotel and is the basis of the incentive fee. Both matter, but they inform different decisions. Readers of the financial statements should start with the definition and the level being compared.