RevPAR Is Up. Margins Are Down. Bonus Received.
Your hotel had a strong year.
RevPAR up. Occupancy up. The STAR report looked good. The owner was pleased. Someone put together a slide deck with upward-pointing arrows and presented it at the quarterly review.
And then the P&L arrived.
Labour costs up 20% since 2019. OTA commissions quietly consuming 15-20% of every third-party booking. Operating margins compressing despite record top-line revenue. The gap between what the hotel earned and what it kept getting wider, quietly, consistently, while everyone celebrated the RevPAR number.
This is not bad luck. It is the logical consequence of optimising the wrong metric for thirty years.
RevPAR was never designed to measure profitability.
It was designed to measure revenue efficiency — how effectively a hotel fills its rooms and at what rate. When STR introduced it approximately 25 years ago, it solved a genuine problem: how do you compare hotels of different sizes fairly? RevPAR answered that. Simple, uniform, measurable. It revolutionised how the industry benchmarked performance.
We've covered the structural problems with RevPAR and who owns the benchmarking infrastructure that built it here. We've covered what a better space-based metric looks like here. This post is about something different.
This post is about the number RevPAR cannot see.
The flow-through problem.
When RevPAR grows through occupancy — filling more rooms, pushing volume — approximately 30% of that incremental revenue reaches the bottom line. The rest is consumed by the cost of servicing those additional guests. Housekeeping. Front desk. Laundry. Maintenance. F&B support. The physical cost of having more people in the building.
When RevPAR grows through rate — the same or fewer guests paying more — profit flow-through approaches 60%. The labour is already deployed. The hotel is already open. The incremental revenue drops almost directly to GOP.
RevPAR treats both scenarios identically. A hotel that grew RevPAR $10 through occupancy and a hotel that grew RevPAR $10 through rate look identical on the STAR report. Their P&Ls are not identical. Not even close.
The industry has spent thirty years incentivising commercial leaders and their GMs to push occupancy. Bonus structures, brand reporting, ownership presentations — all built around RevPAR, which rewards filling rooms regardless of what it costs to fill them. The result is an industry that has been systematically choosing the less profitable path to revenue growth and calling it a win.
The OTA cost RevPAR makes invisible.
A room sold through Booking.com at $200 records as $200 RevPAR.
A room sold direct at $200 records as $200 RevPAR.
The Booking.com booking nets the hotel approximately $160-170 after commission. The direct booking nets $200. RevPAR sees no difference. The P&L sees $30-40.
To be fair — direct bookings carry their own cost. Loyalty programme points, marketing spend, technology fees, metasearch bids. The direct channel is not free. It is simply significantly cheaper than the OTA alternative, and the cost structure is one the hotel controls rather than one a third party dictates. That distinction matters enormously at scale. More on the true cost of direct — and what loyalty programmes actually cost the business — in a separate post.
At scale — across thousands of room nights, across an entire year — the composition of RevPAR is the difference between a healthy margin and a structural profit problem. A hotel growing RevPAR through expensive OTA channel mix is not the same business as a hotel growing RevPAR through direct bookings and rate optimisation. They are completely different financial propositions wearing the same metric.
As covered in the RGI post — your direct booking ratio is one of the most honest signals of long-term financial health your hotel produces. RevPAR ignores it entirely.
The labour number that should change how owners think about occupancy.
US hotels paid $123 billion in wages, salaries and benefits in 2024. A 20% increase from 2019 — and not because of inflation alone. It is a structural repricing of hospitality labour driven by acute shortages, union activity and wage negotiations in major markets.
Unionised properties now carry labour at 43% of revenue. Non-unionised at 33.5%. That nine-and-a-half point gap has widened over the past five years.
And here is the number that belongs in every ownership presentation but rarely appears in one: peak hotel profitability is not achieved at maximum occupancy. The data shows optimal profit margins at 65-70% occupancy. Beyond that threshold, the cost of servicing additional guests exceeds the marginal revenue they generate.
RevPAR rewards 85% occupancy over 68% occupancy every single time, regardless of what that additional 17 points of occupancy actually costs.
The metrics that see what RevPAR misses.
GOPPAR — Gross Operating Profit Per Available Room.
RevPAR's essential complement. A hotel generating $150 RevPAR with $80 GOPPAR is financially healthier than one with $160 RevPAR and $70 GOPPAR. RevPAR alone suggests the opposite. GOPPAR accounts for all operating expenses — labour, utilities, distribution costs, technology, maintenance — and measures the absolute profit available per room before capital costs and taxes.CPOR — Cost Per Occupied Room.
Total operating costs divided by occupied rooms. What does it actually cost to have a guest in the building? If CPOR rises 10% while RevPAR rises 3%, the hotel is losing margin. CPOR makes that impossible to miss.GOP Index.
The same benchmarking logic as RGI — applied to profitability rather than revenue. A hotel can have a RevPAR Index of 105 and a GOP Index of 98. Outperforming the comp set on revenue. Underperforming on profit. The industry benchmarks revenue obsessively. Profit benchmarking against a comp set is almost entirely absent from the Monday morning conversation.TRevPAR — Total Revenue Per Available Room.
For full-service hotels, rooms revenue is only part of the picture. F&B, spa, parking, events — for many properties 40-50% of total revenue. Optimising room RevPAR at the expense of ancillary revenue is a margin-destroying decision the metric actively encourages. TRevPAR captures the full guest spend. RevPAR sees only the room.
The incentive problem.
The reason the metric hasn't changed is not ignorance. It is incentives.
Commercial leaders and their GMs are bonus-linked to RevPAR. Brand reporting frameworks are built around RevPAR. Analysts value hotel assets on RevPAR multiples. Ownership presentations lead with RevPAR. The entire ecosystem rewards one number — and the people inside it are rational enough to optimise for the number they're measured on.
Changing the metric means changing what gets rewarded. That requires an owner who asks better questions, a GM willing to present a more complex dashboard, and a commercial team whose bonus is tied to GOP rather than RevPAR.
None of those things happen automatically. They happen when enough people in enough rooms decide that the Monday morning RevPAR conversation is no longer sufficient.
xoxo, Bored Hotelier 😉
FAQs
What is GOPPAR in hotels? Gross Operating Profit Per Available Room — the profit equivalent of RevPAR. Where RevPAR measures how much revenue a hotel generates per available room, GOPPAR measures how much of that revenue survives after operating expenses. A hotel with higher RevPAR than its competitor can simultaneously have lower GOPPAR if its cost structure is less efficient. GOPPAR is calculated as total revenue minus operating expenses, divided by available rooms.
What is CPOR in hotels? Cost Per Occupied Room — the total operating cost of the hotel divided by the number of occupied rooms. It answers the question RevPAR never asks: what does it actually cost to service a guest? Industry benchmarks vary significantly by property type, but a mid-scale hotel typically targets $40-65 per occupied room. When CPOR rises faster than rate, margin erodes regardless of what RevPAR is doing.
Is RevPAR a good measure of hotel profitability? It is a reasonable measure of revenue efficiency but a poor measure of profitability. RevPAR captures how effectively a hotel fills rooms and at what rate — it says nothing about what it cost to achieve that result. Two hotels with identical RevPAR can have dramatically different profit margins depending on their labour costs, distribution channel mix, and ancillary revenue performance. GOPPAR is the more complete picture.
What is GOP Index in hotel benchmarking? The GOP Index benchmarks a hotel's gross operating profit against its competitive set — the profit equivalent of the RevPAR Index. A hotel can outperform its comp set on RevPAR Index while underperforming on GOP Index, meaning it is winning on revenue and losing on profitability simultaneously. GOP Index benchmarking is significantly less common than RevPAR benchmarking, which is precisely why profit compression often goes undetected until it shows up in the annual accounts.