Performance & revenue
Flow-through
Also written: flowthrough, conversion rate of revenue
What Flow-through means
Flow-through measures the percentage of incremental revenue that converts into profit, specifically Gross Operating Profit (GOP). Distinct from general corporate finance conversion metrics, in hospitality it evaluates how effectively property operations retain profit when top-line revenue increases compared to a prior period or budget.
Formula
Flow-through (%) = (GOP Current Period - GOP Prior Period) / (Total Revenue Current Period - Total Revenue Prior Period) × 100
How it is used
Revenue managers and operators use flow-through to assess cost management during demand surges. A standard target is 50% to 60%; achieving less indicates variable expenses like labor or room supplies are scaling too fast relative to revenue gains. Conversely, negative flow-through signals expense growth outpacing revenue growth. General managers rely on this metric during monthly P&L reviews to hold department heads accountable for marginal cost control, ensuring higher room rates and occupancy deliver actual bottom-line results rather than being consumed by inflated operating costs.
Worked example
A property generates $1,200,000 in Total Revenue and $450,000 in GOP this month, compared to $1,000,000 in Total Revenue and $350,000 in GOP last year. Incremental revenue is $200,000 and incremental GOP is $100,000. Dividing $100,000 by $200,000 yields a flow-through of 50%, meeting the operator's standard efficiency target.
Common mistake
Confusing flow-through with flex-through, which measures the percentage of profit saved when revenue drops rather than gained when revenue grows.
Related terms
Work it out
Break-Even Occupancy Calculator — The occupancy you need before the hotel makes a penny.