hotel management standard

how to measure the management performance of a hotel? The commonly used standard of domestic hotel industry in China is to look at the room occupancy rate of this hotel. In the hotel industry in Europe and America, hoteliers, hotel investors and hotel investment analysts are generally accustomed to using the concept of RevPar(Revenue Per Available Room) as the basis for measuring and analyzing their hotel operating performance. RevPar, a widely used measure in the international hotel industry, reflects the room income generated on a per-room basis, so it can measure the success of hotel room inventory management. Undeniably, the goal of hotel managers is to maximize RevPar through the increase of room occupancy rate and average house price, because room income does account for a large proportion of the total income of hotel operations. Generally speaking, 51%-65% of the total revenue of a three-star hotel that provides full-featured services comes from rooms. In economy hotels or long-stay hotels with limited ancillary service facilities (mainly catering services), up to 91% of the income comes from guest rooms.

compared with RevPar, it is unscientific for the hotel industry in China to use the room occupancy rate as the standard to measure the hotel performance. Especially for those hotels that compete at low prices in pursuit of high occupancy rate, the room occupancy rate cannot explain the problem at all. Although RevPar is recognized by the international hotel industry and is the most commonly used measure of business performance, and it can provide general market trends and some income indexes, there are also some noticeable shortcomings when analyzing the business performance of a hotel based on RevPar. Therefore, some international experts also put forward a concept of performance measurement that can make up for the deficiency of RevPar, namely: GopPar.

I. calculation of RevPar

RevPar can be calculated by dividing the net room income of a hotel (that is, the income after deducting discount, sales tax and other items) by the total number of rooms available for rent, or by multiplying the average daily room rate (ADR) of a hotel by the room occupancy rate. The specific formula is as follows:

total room income ÷ total number of rooms ÷ number of days per year =RevPar

For example, 2,555, 111÷111÷365=71 yuan RevPar

or:

Average daily room rate (ADR)X room occupancy rate =RevPar

For example: 111 yuan × 71% = 71 yuan RevPar

Second, some shortcomings in measuring hotel operating performance with RevPar

Income mix: This mainly involves hotels that have a large number of catering operations and conference and exhibition businesses. In this case, RevPar only reflects a part of a hotel's revenue performance, without considering all other revenue sources. In this case, we will produce inaccurate analysis when comparing the operating performance of hotels. For example, the average room rate of Hotel A is 71 yuan, the room occupancy rate is 71%, and the total number of rooms is 111. The operating income of other departments of the hotel (including catering and other operating income) is 511,111 yuan. On the other hand, suppose that the scale and average house price of Hotel B are the same as those of Hotel A, while the room occupancy rate is only 61%, while the income of other departments reaches 1,111,111 yuan. Although the RevPar of Hotel A is about 15% higher than that of Hotel B (49 yuan and 42 yuan), the total revenue of Hotel B is higher than that of Hotel A.. If the direct expenses of the two hotels are similar (for example, accounting for 35% of the total revenue) and the head expenses of the two hotels are the same, although the RevPar of the second hotel is not ideal, it will eventually earn more money than that of the first hotel.

scale: if compared with small hotels, the RevPar measurement method is unfavorable to large hotels. Common sense shows that a hotel with only 111 rooms is more likely to get a higher occupancy rate than a hotel with 211 rooms, especially when there are seasonal peaks and valleys. In this case, under the same market conditions, the RevPar of a large hotel may be lower than that of a small hotel. Therefore, hotel managers and investors need to consider the scale of a hotel when comparing its RevPar performance with other hotels. Due to economies of scale and sporadic income, it is not impossible for a large hotel to have a better financial performance than a small hotel with a higher RevPar.

meaning of value: the value of a hotel is based on its net free cash flow, not its total income. Although RevPar is somewhat related to the value of a hotel, it cannot be exactly related to the capitalized value of a hotel property. However, the change of hotel value is often closely related to the change of RevPar. Because it reflects an elastic relationship.

third, what is GopPar?

the full English name of goppar is: gross operating profit per available room, and its specific meaning is: operating gross profit (GOP) of each room available for rent every day. In this definition, the operating gross profit (GOP) is equal to the total hotel revenue minus the total department operating income and operating expenses. The calculation of GopPar is clearly explained in the following table. Table 1 calculation explanation of GopPar (unit: yuan)

Because GopPar can't indicate the income combination of a hotel property, it can't make an accurate evaluation of the room income department. However, GopPar can provide a clear indication of a hotel's profit potential. Moreover, GopPar can better reflect the profitability, management benefits and overall value of hotels in most cases.

iv. advantages of GopPar measure

revenue mix: because GopPar reflects the operating profit of a hotel, it can also show the overall operating performance or cash flow potential of the hotel more clearly. Therefore, hotel management companies, hotel investors, investment appraisers, and hotel developers will evaluate the performance of a hotel management company not only on the basis of room income, but on the basis of total operating income and operating efficiency.

scale: GopPar should consider all operating expenses, most of which include fixed and variable expenses. Fixed expenses are mainly related to the scale and requirements of the hotel, while variable expenses are related to the business volume of the hotel. Even under the same market conditions, a large hotel will undoubtedly generate higher operating expenses than a small hotel. A small hotel may spend more on the basis of each room available for rent (because of the economies of scale of large hotels). If a hotel with 411 rooms generates an annual energy expenditure of RMB 175,111 (that is, RMB 437 per room), the energy expenditure of a hotel with only 211 rooms in the same city will reach RMB 111,111 (that is, each room is 511 yuan). Therefore, regardless of the scale, GopPar can provide a good performance measurement for hotels. Sometimes, a small hotel can also benefit from a higher RevPar (because small hotels are more effective in maximizing room occupancy rate and room price), and its operating expenses per room may be higher than that of a large hotel.

it is worth noting that GopPar is very sensitive to any change and fluctuation in RevPar. The profit margin of hotel room service department is much higher than that of any other business department. Therefore, a slight fluctuation in RevPar can greatly affect GopPar, and then affect the value of a hotel. In Table 2, it is assumed that the occupancy rate and average house price of Hotel C have decreased by 5%, resulting in a corresponding decrease of RevPar by 11%. In addition, suppose that other income has decreased by 2. 5%, and the department expenditure will also change with the business volume. Therefore, the GopPar of Hotel C has correspondingly dropped by about 16%, that is, from 42 yuan to 35 yuan. Table 2 the transformation from RevPar to GopPar in c hotel (unit: yuan)

it can be seen that the transformation from RevPar to GopPar is very high, almost one to one. A small fluctuation of RevPar may have a very important impact on GopPar. Therefore, when analyzing the performance of a hotel or a group of hotels, hotel management analysts should not only rely on a measurement method, but should regard GopPar as a supplement to RevPar.

in a word, RevPar shows the performance of a hotel in room inventory management, which can provide some basic market trends, but it can't provide any cost indication of a hotel, so it can't show that the hotel has made more money. On the other hand, GopPar can show the profit of the hotel more clearly by considering management control and efficiency and excluding the potential advantages of small hotels. As a hotel manager in China, it is a basic principle to proceed from reality when measuring the performance of hotel management, whether it is to continue to use the room occupancy rate standard, to adopt RevPar, or to use the common ideas of the international hotel industry.