You probably heard statements such as “we need to flow ”, “ we did not flow ” and etc.

 

You are probably wondering what Flow through is? Why are we speaking so much about flow? Moreover, don’t we have a budget or goal that we need to meet rather than flow?

 

If you are in the Hospitality Industry, things are little different. First, I would like to drive your attention to why our Key Performance Indicator is FLOW THROUGH and not other KPI.

 

In our life not everything always goes as we plan, so does in Hospitality and in Finance. We do our operating budget once a year, we do our forecast once a month but event though, not always we are able to correctly execute what we plan, and often for the reasons out of our hands.

 

Flow through allows us to see management’s abilities to act in time of change. Whether positive or negative. Flow through calculation measures the difference between revenue and profit in comparison to its goal or time period. Flow through is a tool that allows us to track the change in profit in correlation to change in revenue.

 

Typically flow through is expressed in percentage. Depending on a company to company it could be a different number, however often the goal is 50%.

 

Before we review Flow through calculation, let’s look at all components that go into Flow through calculation.

 

Revenues- all revenues generated by the hotel’s departments that are producing revenue

Expenses- all expenses associated and necessary to operate revenue generating departments

Undistributed Expenses- all expenses that are not associated with any revenue-producing departments. Utilities, Repairs etc.

Departmental Revenues-Departmental Expenses= Profit

Profit - Undistributed Expenses= GOP or House Profit

 

Next, let's take a look at the simple calculation of flow through