Key takeaways
- If revenue grows but GOP falls, the incremental revenue is not reaching profit. The first figure to check is flow-through.
- If ADR grows because sales come through high-commission channels, look at ADR net of commission rather than gross ADR.
- Compare each expense line with the revenue base it should be measured against, then convert the difference into baht. That shows which line to fix first.
A hotel owner opens the year-end report and sees revenue per room up to THB 1.8 million, the highest since opening. The sales team celebrates, yet this year's GOP is lower than last year's. The question is therefore not whether the hotel sells well, but where the additional money from sales has gone.
A hotel like this is like a powerful motorbike whose wheel spins freely. The rev counter climbs and the engine roars, but the distance covered does not increase accordingly. Judging by the rev counter alone, you would think the bike was running well.
Read GOP through change, not a single figure
The definition of GOP and the structure of departmental and undistributed expenses are explained in the article GOI vs GOP. This article focuses on finding what causes the difference. The first tool is flow-through.
Flow-through = change in GOP ÷ change in total revenue
This figure shows how many baht of every THB 100 of additional revenue become GOP. The appropriate level depends on whether the extra revenue comes from price or from the number of nights sold. A price increase adds almost no variable cost, whereas selling more nights brings housekeeping, room supplies and commission. Owners should set the threshold in the budget at the start of the year, and be wary of benchmark figures that do not state their source, hotel group or data year.
Example: revenue up THB 27 million, but GOP down
Hypothetical example A 140-room hotel open 365 days a year, with 51,100 room nights available per year. The figures do not refer to any real hotel. Units are THB million unless stated otherwise.
| Item | Prior year | This year | Change |
|---|---|---|---|
| Room Revenue | 150.0 | 168.0 | +18.0 |
| F&B Revenue | 60.0 | 70.0 | +10.0 |
| Other Revenue | 15.0 | 14.0 | −1.0 |
| Total Revenue | 225.0 | 252.0 | +27.0 |
| Room commission | 11.0 | 20.0 | +9.0 |
| Other rooms expenses | 22.0 | 23.7 | +1.7 |
| F&B expenses | 45.0 | 56.0 | +11.0 |
| Other expenses | 8.25 | 8.4 | +0.15 |
| Total undistributed | 59.0 | 71.0 | +12.0 |
| GOP | 79.75 | 72.9 | −6.85 |
| GOP Margin | 35.4% | 28.9% | −6.5 points |
| GOPPAR per day (THB) | 1,561 | 1,427 | −134 |
Flow-through = −6.85 ÷ 27.0 = −25.4%. For every THB 100 of additional revenue, GOP actually fell by THB 25.4. If the owner had set the threshold at 40%, this year's GOP should have been 79.75 + (27.0 × 40%) = THB 90.55 million. The actual figure is THB 17.65 million below the threshold.
Converting anomalies into baht
The next step is to multiply last year's ratios by this year's revenue bases and compare the result with actual expenses. Commission and other rooms expenses use room revenue as the base, F&B expenses use F&B revenue, other expenses use other revenue, and undistributed items use total revenue.
Continuing example Excess compared with last year's ratios. Units are THB million.
| Line | % last year | % this year | Excess |
|---|---|---|---|
| Commission (to room revenue) | 7.3% | 11.9% | 7.7 |
| Other rooms (to room revenue) | 14.7% | 14.1% | −0.9 |
| F&B (to F&B revenue) | 75.0% | 80.0% | 3.5 |
| Other (to other revenue) | 55.0% | 60.0% | 0.7 |
| A&G | 8.9% | 9.1% | 0.6 |
| Sales & Marketing | 6.2% | 6.7% | 1.3 |
| IT & Telecom | 1.8% | 2.0% | 0.5 |
| POM | 4.0% | 4.4% | 0.9 |
| Utilities | 5.3% | 6.0% | 1.6 |
| Total | 15.9 |
If every line had held its previous ratio, GOP would be around THB 88.8 million, a margin of 35.2%. Nearly half of the excess comes from commission, while F&B and the undistributed group together account for another THB 8.4 million.
An attractive ADR may be a bought price
In the example, occupancy rose from 70% to 72% and ADR rose from THB 4,193 to THB 4,566, or 8.9%. Read on its own, that suggests the sales team did very well. But commission per night rose from THB 308 to THB 544, so ADR net of commission rose only from THB 3,886 to THB 4,023, just 3.5%. The additional room revenue of THB 18 million required an additional THB 9 million in commission.
The reading above holds when OTA revenue is recorded gross and commission is shown as an expense. If some channels are recorded net, adjust them to the same basis before comparing across years.
Splitting the additional room revenue of THB 18 million into two parts makes the picture clearer. The extra 1,022 nights sold, multiplied by last year's ADR, give a volume effect of about THB 4.3 million. The remaining THB 13.7 million or so is a price effect. In principle, revenue from price should flow through to profit at a high rate, but in this example commission rose by as much as THB 9 million. This means part of the price increase came with a shift to higher-cost channels, rather than genuine pricing power.
Before drawing conclusions, also check for one-off events, such as major repairs recorded as expenses, a change in account classification policy, or the opening of a new outlet. Separate these items from the normal base, then judge whether the hotel has a structural problem.
Questions to ask at each point
| Anomaly | What to request | Questions for the GM |
|---|---|---|
| Commission | Monthly revenue, ADR and commission by channel | Which channel is growing, and what is the net profit per night? |
| Rooms | Cost per occupied room and productivity per room cleaned | Is staffing adjusted weekly to occupancy? |
| F&B | Food cost, beverage cost, payroll and covers by outlet | Which outlet earns less revenue than its own fixed costs? |
| Undistributed | A list separating fixed and variable items, and annual contracts | Which items are one-off expenses, and which will recur? |
| Utilities | Electricity and water units per room sold, separate from the tariff | Did expenses rise because of usage or because of the price per unit? |
Do not stop reading at GOP
GOP is before management fees, property tax, insurance and the renovation reserve. A hotel with a good GOP may therefore leave little for the owner. Continue reading down to profit after the management fee and FF&E reserve, especially when fees are tied to revenue or GOP.
Next steps
- Calculate flow-through monthly, and separate the effect of price from the number of nights sold.
- Set a flow-through threshold in the budget, and state the source of every benchmark.
- Add ADR net of commission to the owner's report, broken down by channel.
- Prepare a line-by-line excess table in baht, sorted from largest to smallest.
- Choose the top 2 to 3 lines to fix, and assign an owner and a review date for each.
- Check that account classification follows the same edition of USALI in both years.
- Track GOPPAR alongside RevPAR every month so that sales do not mask profit.