Adjusted Gross Operating Profit (AGOP)

If you asked someone what the most important metric for hoteliers to track is, they’d likely say revenue. It’s true that revenue is important, but it doesn’t always tell the full story about a hotel’s financial health. Keeping track of Adjusted Gross Operating Profit (AGOP) gives more robust insight into the specific operating data of your property.

Beyond simply looking at revenue, AGOP also takes into account the operating expenses specific to running a hotel — an incredibly important consideration as the rates of inflation, goods and services continue to rise. While data shows U.S. hotel room revenue surpassing pre-pandemic levels, the cost of operating a hotel has also become more expensive since 2020. Learn more about how calculating AGOP can help you make the best decisions regarding your revenue and expenses. 

What is Adjusted Gross Operating Profit (AGOP) in Hotels?

AGOP represents the profit remaining after deducting all operating expenses from a hotel's total revenue, excluding non-core costs. It reflects the efficiency of a hotel's main operations, including room sales, food & beverage services and other income streams.

Here's a breakdown of what AGOP considers:

• Revenue: This includes income from room occupancy, food & beverage sales, spa services, conference facilities, and other income-generating activities.
• Operating expenses: These are the costs directly associated with running the hotel, such as salaries & wages, utilities, maintenance, supplies and marketing expenses.

AGOP excludes:

• Taxes: Income tax, property tax, etc.
• Interest: Interest payments on loans.
• Depreciation and amortization: The non-cash accounting concept of spreading the cost of assets over their useful life.

Since AGOP focuses solely on a hotel's core business operations, it provides a clearer picture of its profitability from day-to-day activities. This metric helps hotel owners make informed decisions about resource allocation, pricing strategies and cost-cutting measures.

What Can Hotels Use AGOP For?

There are a few key benefits for hoteliers interested in understanding their adjusted gross operating profit:

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Accurate financial picture: Adjusted Gross Operating Profit (AGOP) provides a clearer view of a hotel's financial health by accounting for non-recurring expenses and adjustments that can distort traditional profit measures.

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Performance comparison: AGOP allows hotels to compare their profitability against industry benchmarks and competitors more effectively, identifying areas for improvement and opportunities for growth.

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Investment decisions: Investors and lenders use AGOP to assess the hotel's financial performance and make informed decisions about investing in or lending to the property.

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Management evaluation: AGOP is a key metric for evaluating the performance of hotel management teams, as it reflects their ability to control costs and maximize revenue.

How to Calculate Adjusted Gross Operating Profit (AGOP)

Calculating AGOP is straightforward. Here's the formula:

AGOP = Total Revenue - Total Operating Expenses

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Let’s see it in action:

Your hotel has reached a total revenue of $1,000,000, and your operating expenses are $650,000. To calculate your AGOP, you would do the following: $1,000,000 - $650,000 = $350,000.

In this example, the hotel has an AGOP of $350,000, indicating a healthy profit margin from its core operations after accounting for relevant fees and expenses.

How to Improve Your AGOP With Technology

A streamlined and efficient operation directly impacts a hotel's profitability. Canary Technologies' innovative digital guest journey software empowers hoteliers to manage all aspects of the guest experience, from pre-arrival to post-stay, through a single, user-friendly platform.

Canary helps hotels:

• Increase Revenue: Upsell and cross-sell additional services like spa treatments or dining experiences through targeted guest communication within the platform.
• Reduce Costs: Automate manual tasks like guest communication and housekeeping requests, freeing up staff time and reducing labor costs.
• Enhance Guest Experience: Provide a personalized and frictionless experience through mobile check-in, guest messaging, and self-service options.

By streamlining operations and boosting guest satisfaction, Canary can directly contribute to a hotel's increased AGOP. Want to learn more? Book a demo today.