Hotel profitability made simple Everything you need to understand P&L benchmarking in seven pages.

Analyze your hotel’s profitability data for better revenue strategies.

How profitable is your business? Is your hotel financially viable and on track for success as the industry recovers from a global pandemic? An understanding of your P&L data provides definitive answers to those questions and highlights the relationship between the money you generate (revenues) and that which you spend (expenses).

Your P&L statementA P&L statement reports profits or losses over a given time based on your company’s revenue and expenses—essentially this statement is a reflection of your ability to drive sales, manage expenses and generate profits.

Your statement provides these insights through your net income, calculated by totalling revenues and deducting expenses for both operating and non-operating activities—this is more commonly referred to as your bottom line.

But before we get too technical, let’s focus on the importance of your P&L statement.

Understanding profit and loss: the benefits for hoteliers

Why analyzing your P&L data is crucial Hospitality is a cost-intensive industry as a result of a large workforce and high level of guest amenities.

The COVID-19 pandemic has created tremendous challenges in operating in both a safe and profitable environment.

Much of the hospitality industry’s offerings are perishable— if rooms or food are left unsold, the associated costs are essentially wasted.

Seasonality presents a challenge, and hoteliers need to manage the variances between high and low seasons, weekends and weekdays, and holiday periods.

What you can learnCompare your performance against your own historical data, the competition or your established budget through:Analyzing departmental, gross operating and EBITDA margins

Studying the trends – Establishing whether metrics are improving or deteriorating over periods can help you understand performance more clearly and refine your approach to capitalize on opportunities and improve weaknesses.

Key performance indicators: Total revenue per available room (TRevPAR), gross operating profit per available room (GOPPAR) and labor costs per available room (LPAR) enable you to understand property profitability on a per-room basis.

Who benefits most from profit and loss reports?The hospitality industry has a number of different business models that include management agreements, franchise agreements, leases, and owner-operator management.

For every model, a different aspect of the P&L statement is most relevant.Owners and hotel/management companies – data offers an understanding of the effectiveness of their strategy. Typically, owners are more interested in net income, while management companies pay more attention to GOP.

Investors – can understand the financial viability of projects through assessing profitability in markets and historic trends.

Gross operating profit per available room (GOPPAR)Measures the relationship between your revenue and expenses, providing a better picture of your hotel’s financial health. By taking into account your number of available rooms, GOPPAR provides a true reflection of your performance on an available rooms basis.

GOPPAR = Gross operating profit / Total available room nights

Coming to terms with P&L starts with learning the P&L terms!We’ve covered three of the key terms below and provided a link to our free profit and loss glossary for a full list.

Labor cost per available room (LPAR)Used to calculate hotel labor costs on a per-available-room basis and produce a clear picture of how much a hotel spends in labor expenses across all rooms available in any given period.

LPAR = Total labor / Total available room nights

Total revenue per available room (TRevPAR)A measure of Total operating Revenue Per Available Room (TRevPAR), calculated by sum of room, food and beverage (F&B) and all other operating revenue divided by total available rooms.

TRevPAR = Total revenue / Total available room nights

Your guide to Profit & Loss Terminology

Download our free P&L glossary

P&L terminology article

https://str.com/sites/default/files/profit-and-loss-glossary.pdfhttps://str.com/data-insights-blog/your-guide-to-profit-and-loss-terminology

Hotel revenue by departmentP&L statements are broken down by department and, unsurprisingly, room revenues almost always account for the highest contribution.

In the example below, room revenue‘s contribution is the same in both hotels. But…

Hotel A has a greater proportion of revenue from its food & beverage, due to on-site bars and restaurants.

Hotel B only offers room service, and therefore drives less revenue from that department.

Four examples of hotel profitabilityHotel expenses by departmentBut if Hotel A has restaurants to run and B only offers room service, what does this mean for expenses and profitability?

F&B costs account for a far higher amount of Hotel A’s expenses, as there will be increased labor expenses for waiting and kitchen staff as well as higher costs of goods and F&B supplies.

Hotel B expenses play a far less influential role in the overall expenses for the hotel with their room service-only model requiring a much smaller F&B operation.

The level of profitability is dependent on the relationship between revenue and expenses.

Hotel revenue contributions by departmentMisc. IncomeOther Opt. Dept.FoodRooms Beverage

40.0%

15.0%

10.0%

5.0%

15.0%

15.0%

Hotel A

40.0%

15.0%

10.0%

5.0%

15.0%

15.0%

Hotel B

Other F&B

40.0%

8.0%6.0%

6.0%

20.0%

20.0%

Hotel A

Beverage

Hotel food and beverage expensesFood

$15.00$12.00 $10.00

Food

$30.00$25.00

$20.00

Hotel A Hotel B

Beverage Other F&BFood Beverage Other F&B

Other F&B

Per occupied room

Hotel labor costsWith guest experience vital to hoteliers, it is important that F&B outlets are adequately staffed and provide a high level of service.

It is for this reason that F&B labor is more costly than other departments, with more staff required to ensure the hotel dining runs smoothly.

From a profitability perspective, fluctuating occupancy presents the challenge of balancing the number of staff in relation to guests. How well a hotel manages its labor costs per available room (LPAR) will have a significant impact on profitability.

As the chart below demonstrates, Hotel B manages its LPAR more effectively.

So, which is more profitable?As we’ve already discussed, Hotel B is more effective at managing its labor costs, and this enables it to convert revenue into profit more effectively.

The image below shows that even though Hotel A has higher revenue, Hotel B has a superior gross operating profit (GOP) margin because of its powers of flow through.

The key here is having the context to know how the competition or market is performing. In isolation it would be difficult for Hotel B to understand whether its GOP margin is a cause for concern or celebration. The same applies to Hotel A, which might have been happy with its 35.0% GOP margin before learning the performance of the competition.

Hotel B

40.0%

$150

$60

GOPPAR

Hotel A vs. Hotel B - which is most profitable?TRevPAR GOP Margin

Hotel A35.0%

$200

$70

Source: STR. 2020 © CoStar Realty Information, Inc.

Labor costs per available room (LPAR)

$80.00

$120.00Hotel A

Hotel B

Hotel BHotel A

What’s next?You tell us!If you’d like to discuss your profitability trends with an STR expert, email:

HOST@str.com (North America) or profitability@str.com (International)

View all of our P&L solutions

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