Gross operating profit: calculate and improve

Gross operating profit (GOP) measures the total revenue of your property minus operating expenses. Unlike metrics that focus only on sales, GOP can help you understand operational efficiency by showing how much money remains after paying for the staff, goods, and services needed to run the hotel.

Why does GOP matter in hotels?

Revenue alone does not always indicate a healthy business. You can have full occupancy and high room rates, but if operating costs are too high, your bank account may not reflect that success.

Gross operating profit is commonly used as an indicator of operational efficiency because it accounts for the cost of doing business. It helps answer the question: “Is this property being managed efficiently?”

GOP is typically made up of two main financial components:

Total revenue: Income from rooms, food and beverage (F&B), spa, parking, and other departments.
Operating expenses: Costs tied to operations, such as salaries and wages, cost of goods sold (F&B), utilities, marketing, maintenance, and commissions.

GOP typically excludes the following non-operating fixed costs:

Fixed costs (non-operating): Expenses that exist regardless of operations, such as property taxes, insurance, rent, interest, depreciation, and amortization.

Focusing on GOP can help you avoid the common mistake of “buying revenue”—spending so much on marketing or OTA commissions to acquire a booking that the remaining profit is limited.

What is a good GOP for hotels?

Because GOP is a dollar amount (or currency amount), it can vary significantly depending on the size of the property. To compare performance, hoteliers often look at the GOP margin (GOP as a percentage of total revenue).

GOP Margin = (GOP ÷ Total Revenue) × 100

Benchmarks for GOP margins depend heavily on the service level and business model. Here are typical ranges seen across the industry:

Economy and limited service hotels (3-star range): These properties often have higher GOP margins, commonly between 40% and 50%.
Full-service and luxury hotels (4 to 5-star range): These properties often operate with lower GOP margins, commonly around 20% to 35%.

In practice, a small B&B with low overhead might keep 50 cents of every dollar earned, while a luxury resort might keep closer to 30 cents—even if the resort’s total revenue is much higher.

How do you calculate GOP?

To calculate gross operating profit, you subtract operating expenses from total revenue.

Gross Operating Profit = Total Revenue − Total Operating Expenses

Practical example
Here is a simple example that shows how the calculation works:

Total revenue: $100,000 (rooms + F&B + extras)
Total operating expenses: $65,000 (staff wages + linen + utilities + food costs + marketing)

$100,000 − $65,000 = $35,000

In this case, the GOP is $35,000. This is the amount available to help cover fixed costs (like rent and taxes) and potentially contribute to net profit.

What is the difference between GOP, GOPPAR, AGOP, and NOI?

These KPIs are often confused, but they serve different purposes in financial analysis. Here is how they differ:

GOP (gross operating profit): Focuses on operating performance by subtracting operating expenses while excluding fixed costs like rent or insurance.
GOPPAR (gross operating profit per available room): Takes GOP and divides it by the number of rooms available, which can help with comparisons across properties or time periods.
AGOP (adjusted gross operating profit): Adjusts GOP by subtracting certain fees (such as a base management fee) to reflect a different view of operating performance, depending on the ownership/management structure.
NOI (net operating income): Typically takes GOP and subtracts fixed costs like property taxes, insurance, and rent (often excluding income tax and interest) to estimate asset-level profitability.

Example of how they move differently
If your property taxes double next year, your NOI will likely drop, but your GOP may remain similar. This can suggest that the change is driven by fixed costs rather than day-to-day operations.

What factors influence GOP?

Several operational levers can influence GOP. The main drivers of hotel profitability often include the following:

Labor costs: This is typically the largest expense in hospitality, and scheduling inefficiencies can put pressure on GOP.
Distribution mix: OTA bookings come with commission fees (often in the 15–20% range), while direct bookings may have lower distribution costs.
ADR (average daily rate): Rate changes can meaningfully affect operating results, especially when service and staffing levels remain relatively stable.
F&B efficiency: In hotels with restaurants, food waste and weak inventory management can increase cost of goods sold (COGS) and reduce margins.
Utility consumption: Energy and water usage can be significant operating expenses, and inefficient practices can increase costs.

How do you improve GOP in your hotel?

Improving gross operating profit typically involves increasing revenue without increasing costs at the same pace, and/or reducing avoidable waste while maintaining service levels.

Here are five strategies that can support GOP optimization:

1. Increase direct bookings to reduce commissions

OTA bookings can come with commission costs that reduce your net revenue per reservation. Increasing direct bookings helps you keep more of each sale. Email marketing tools can support marketing automation and guest relationship-building, which may help you encourage more direct booking behavior over time.

2. Implement dynamic pricing

Static pricing can make it harder to adapt to demand shifts. A solid revenue management approach helps you respond to changing market conditions. Dynamic pricing software can help you adjust rates based on market signals, which can support more responsive pricing decisions and better alignment between demand and rates.

3. Automate guest communication to support staff efficiency

Front-desk teams often spend time answering repetitive questions about parking, check-in times, and property policies. A well-trained chatbot can help handle common inquiries automatically, which can reduce manual workload and help staff focus on higher-touch guest needs.

4. Focus on high-margin upselling

Some add-ons—like late check-out, upgrades, or digital guides—can be delivered with relatively low incremental cost compared with core room operations. Promoting these extras in a structured way can support incremental revenue opportunities and a stronger overall margin mix.

5. Optimize staffing levels

Aligning staffing schedules with expected occupancy is an important part of cost control. Analyzing occupancy trends can support planning, which can make it easier to schedule teams in line with anticipated demand.