What is flow-through, and what is a good flow-through percentage?

The formula, and what it is actually testing

Take the extra revenue you earned above budget. Ask how much of it survived to the profit line. That ratio is flow-through, and it is the fastest read available on whether your cost discipline is real.

Rooms-led growth flows richer than food-and-beverage-led growth, for the obvious reason: an extra occupied room costs you very little, while an extra cover costs you the food, the labour to cook it and the labour to serve it. Any target that ignores the mix is measuring the mix rather than the discipline.

Flex is the half nobody runs

Flow-through tests the upside. Flex tests the downside: when revenue falls SHORT of budget, do the costs actually come out?

Almost every organisation measures the first and almost none tests the second — which is how a business discovers, in a bad quarter and not before, that the costs it had classified as variable were nothing of the kind.

And it all rests on fixed/variable honesty

Neither metric means anything if the fixed/variable classification is fiction. A cost labelled variable that has never once gone down is fixed, whatever the model says — and it will destroy your flex at the exact moment you were relying on it.

Re-examine the labels annually, and be suspicious of any cost that is variable in the plan and immovable in practice. That gap is where the plan and the reality quietly separate, and it does not announce itself until the revenue misses.

Terms

• Flow-Through