GM daily digest: Rev-GOP conversion explained

What does the Rev-GOP conversion show? 

Your conversion or flow-thru goal is the expected GOP if all revenue variances flow into profit at the expected level. It indicates whether any extra sales are flowing efficiently into profits or whether costs increase too much.   

For example, if revenues are $50,000 higher this month than forecasted, how much of the $50,000 should make it through to the profit line? How much will flow? Monitoring this provides a simple overview of cost efficiency – are costs increasing too much when additional revenue is made? 

How is the conversion goal calculated? 

To set the conversion goal you need to look at the main revenue streams and consider what level of direct/variable costs arise from a change in revenue for each. Room revenue is split further between changes in ARR and changes in occupancy. For occupancy we set an actual amount for the expected costs of using the room.  

Click on the settings icon in the top right corner to view the targets. Conversion targets are set at chain level. It is possible to adjust these for individual property, but we recommend using the chain standards for consistency. The chain settings should be static. Contingent on group policies, these can be reviewed every few years typically by the head office.  

See below for a detailed description of each target setting: 

ARR% flow to GOP: When average room rate is higher than forecast, what percentage of that additional revenue should flow through to GOP? There may be some additional costs due to increased room rate, for example, increased third-party commissions, credit card commissions, centralized fees, and management fees. The rest of the additional revenue should flow directly through to GOP. 

Occ cost of delivery: For each additional occupied room over forecast, how much extra do you expect to spend on that room? This can include housekeeping labor hours, electricity, linens, cleaning equipment etc. This value is input as a monetary value in your local currency and is deducted from the ARR% flow value to make up the total expected effect of room revenue variances on profit. 

Food & Beverage % flow to GOP: For additional F&B revenue, what percentage do we expect to reach the GOP? Take into consideration food purchases and staff needed to supply the additional covers. 

Other revenue % flow to GOP: For all other additional revenue, what percentage do we expect to reach the GOP? 

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