graph with a red line going down reflecting negative flow through

At the beginning of a period of decline in occupancy and rate in many hotels, the negative Flow-through is very high. It is pretty easy for it to exceed negative 100%.

NB: This is an article from Catala Consulting

In recent times, we have received several questions from hotel owners on the issue of Flow-through and how to implement it in their hotel’s financial statement. It is much easier to understand Flow through the moment you become familiar with the calculations involved.

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This article will take you through all you need to know about negative Flow through and how it can benefit you.

How does Flow-Through work

Flow through, as it is fondly called, is a term used to measure how much made your hotel business compares one period to another. It comprises both revenues and profit. This is why it is called “Through.” Another common term used to describe this measurement is called “Retention.” 

Some hotel owners have suggested that it is best you increase the rate and overall revenues in your hotel, but it is also essential to know how much you will save and get in profits

Your ability to manage Flow-through, whether positive or negative, shows your understanding of your hotel’s financing profit model. Measuring Flow-through various departments and critical factors is the basis for understanding your hotel’s financial potential and your hotel’s financial results.

It is good to note that all the revenue streams in your hotel have two significant attributes: volume and pricing. It is easier to understand and measure departmental Flow when you already have an understanding of the difference and how to measure the impact.

How to include Flow through in your hotel’s financial statement

The way to calculate Flow through is quite simple 

  • The first step is to find the difference in the revenue of different periods
  • the next step is to subtract the profit from the same period.
  • Divide the difference in revenues by the difference in profit

When comparing flow-through between two periods, it is necessary to include any event that had an impact (directly or indirectly) on the results. 

Negative Flow through

Negative Flow through (also known as retention) is often the redeeming feature when revenues are in your tilt backward. 

The negative flow-through is usually high in most big hotels during decline rate or occupancy periods. There is every possibility for it to exceed negative 100%.

In a negative flow-through, the revenue is positive, but the GOP is negative. It can also be seen as a situation where the revenue is increasing, but the profitability ratio is in a negative state.

In most cases, unless other factors are present, the cost-control ability in that period shows the potential for improvement.

Read rest of the article at Catala Consulting