Flow Thru, this is my abbreviation, is a catch all phrase that measures how much made it through your business comparing one period to another. What made it through, from revenues to profit. Another term to describe this measurement is retention. A good analogy to grasp the concept of flow thru is to compare it to your paycheck. Imaging I give you a $1000 a week raise. The question then is how much will end up on your pay vs. how much got eaten up by higher taxes and other deductions. The same goes for additional revenues in your business. If revenues are $50,000 higher this month than the same month last year, how much of the $50,000 will make it through to the profit line. How much will flow?
“it’s great that you increased the rate and overall revenues in my hotel, but what I really want to know is how much you will keep and give me in profits” – anonymous hotel owner
Managing flow thru in your hotel is a key attribute to understanding the profit model for your hotel. The reason it is so important to understand is the different characteristics that emerge when revenues go up or down in different departments. Measuring flow thru by department and by key driver is the basis for understanding your hotels real financial results and most importantly its financial potential.
Here are some motherhood questions to get your flow thru imagination going.
- The overall revenues year to date are up by 1.3 million dollars how much should flow in GOP? ?
- Occupancy is up over last year by 5% – and the rate is up $15 as a result room revenues are up $720,000 – how much should flow in rooms profit and GOP?
- Restaurant average check is up by $2 and as a result food revenues are up $10,000 – how much should flow in F&B profit and GOP?
- Liquor revenues are up over last year in my lounge by $7,000 – how much should flow in F&B profit and GOP?
- Banquet food sales are $50,000 higher this month than the same month last year driven by higher volume and average check – how much should flow to the F&B profit and GOP?
The way we calculate flow thru is straight forward. The first step is you subtract the revenues from two different periods and step two is to subtract the profit from the same two periods and the thirds step is to divide the difference in revenues by the difference in the profit. See the sample charts below.