February 11, 2012

Hotel Profit & Loss Statement - Overview

"While we were in a Sales meeting, my boss uses that term that was not in my daily jargon, she mentioned several times "P....and L, P..N L" but I am wondering what is behind, dixit Joey Hernandez, a Sales Manager at a hotel in Deira". If you are like Joey, discover this post and perhaps you can challenge your boss later on. Well Joey, let us help you with the global understanding.
Profit and Loss statement is a flow statement that measures the performance of an organization over a period of time. Some key points to note in a profit and loss (P&L) statement: 

  • It is an accounting statement: That means accountants can change it at their will,
  • It is for a period: That means whenever you see any P&L, it would be for (let’s say) 1st Jan 2011 to 31st Dec 2011 or 1st Apr 2011 to 31st March 2012,
  • P&L is like a Pipe! Money (In the form of revenues) flows into this pipe and Money (In the form of costs or expenses) flows out of this pipe! 

1) What are the revenues measured in a hotel property?
- Rooms Revenues,
- Food and Beverage Revenues,
- Conferences and Events Revenues,
- Telephone Revenues,
- Spa and Health Club Revenues,
- Parking Revenues,
- Other Income

Rooms and F&B are the main driver of overall performance, while the other revenues may help the total contribution.

2) What are the expenses / cost measured in a hotel property?
- Salary / Wages + Fringe Benefits,
- Food and Beverage Expenses,
- Spa Expenses,
- Administrative and General,
- Marketing and Distribution Expenses
- Repairs and Maintenance,
- Energy and Utilities Costs,

The major source of high expenses vary from country to country especially for Salaries/Wages (USA+Europe vs. Middle East & Asia), F&B Cost (Domestic goods vs. imported goods), Energy Costs (A/C environment vs. Normal climate, hotel facilities...). 

Ask yourself which expenses in your own work environment is being calculated in the P&L.
i.e: You are a Reservation Supervisor, so the cost that you generate would be (Phone Calls, PMS Software expenses, 

When you compare the revenues vs. expenses, you will then obtain the Gross Operating Profit (G.O.P).

To obtain the Net Operating Profit, you take your G.O.P and you subtract your Fixed Charges (Equipment and other rent/lease, real estate taxes, Building and other insurances).

The main size and performance measure in the Hotel industry are identified as the Occupancy Rate, multiple occupancy factors, length of stay average, ARR (Average Room Rate), Revenues PAR (per available room). The main profitability measures of an Hotel are based on Gross Operating Income PAR (Per available room), and to Net Operating Profit PAR (Per available room)

So let's take a step back and run through the definition of RevPAR, GOPPAR and NOPPAR:

REVPAR = (Rooms) Revenue / (per) Available Rooms, or, ADR (average daily rate) x Occupancy %

GOPPAR = GOP (gross operating profit) / (per) Available Rooms

NOPPAR = NOP (net operating profit) / (per) Available Rooms

The difference between GOPPAR and REVPAR are the entire operational costs of the hotel. The problem is if we lump all of them together we don't fully understand the results from our pricing, contracting and distribution strategies. Same goes for NOPPAR.

If you are not familiar with these terms, we would recommend for you to either setup a meeting with your Financial Controller, or ask your training manager, to prepare a training about "Financial Acumen - for non financial people". 

Many times, we see Front Office Manager, Revenue and/or Reservation Manager or Sales Director focused on their daily operations and tactical, but looking into the P&L exercise, it become a weak practice. This is where the results are being discussed and compared. Only a great P&L results and a healthy G.OP will lead to a global appreciation.

RevPAR for Dubai and Sharjah Hotels is almost understood by everyone, while GOPPAR is rarely implemented. Things should change in 2012.


Romain Saada
For more information, please contact us at info@rsvp-hospitality.com
Visit our website at www.rsvp-hospitality.com 

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