Flow through: Formula & calculations for small hotels to maximise revenue

What is flow through?

Flow through is a simple but powerful way to measure how much of your extra revenue actually turns into profit. As a small hotel owner, you’ve probably had months where bookings went up but, somehow, your bank balance didn’t. That’s exactly where flow through comes in.

At its core, flow through is the percentage of profit you keep from each additional dollar (or pound, or euro) of revenue. It shows whether that extra income is being eaten up by rising costs or if it’s adding real value to your bottom line.

Let’s say your hotel made $5,000 more this month than last month. Flow through tells you how much of that $5,000 you actually kept after covering costs like staffing, utilities, and supplies.

In the hotel industry, flow through is a key profitability metric. It’s especially helpful in spotting cost issues that might not be obvious when you’re focused on boosting bookings. And the best part? You don’t need to be an accountant to use it. With just a couple of numbers, you can start calculating flow through and making smarter decisions about your business.

In this article, we’ll show you what you need to know about flow through within your business, how it impacts your success, and how you can improve it with smart investments.

Why is flow through so important?

Running a small hotel means wearing a lot of hats: handling guest check-ins, managing staff, juggling bookings, and keeping the lights on. With all that going on, it’s easy to focus on top-line revenue and assume more bookings mean more profit. But without watching what happens to your costs, that extra revenue can disappear just as quickly as it came in.

That’s why flow through matters.

It helps you see more than how much you’re earning – it helps you see how much you’re keeping. Even a fully booked month can fall flat if higher occupancy leads to bigger utility bills, extra staff hours, or more cleaning costs that eat into your margins.

Flow through shines a light on where your money is really going. It gives you a clearer sense of whether your pricing, staffing, and other decisions are actually paying off.

When you’ve worked hard to grow your revenue, flow through helps you hold onto more of it.

By keeping an eye on your flow through percentage, you can:

• Identify months where profits didn’t grow with revenue—and find out why.
• Make smarter choices about expenses, without compromising on guest experience.
• Feel more in control of your bottom line, even in slow or unpredictable seasons.

Ultimately, flow through helps you move from guessing about profit to knowing what’s working.

Benefits of flow through for hotel profitability

Flow through gives you a clear advantage: it helps you make more money from the bookings you already have. Once you start tracking the numbers, you’ll see how much of your extra revenue becomes profit and where there’s room to improve.

Here’s how flow through can boost your bottom line:

1. Small changes can lead to big results

When you understand how your costs shift with revenue, you can make smarter decisions about staffing or supplies without affecting guest experience. Even small tweaks can help you keep more of what you earn, especially during busy periods.

2. See what’s working and what isn’t

Flow through shows whether a promotion or room rate change is truly adding value. If revenue goes up but profit stays flat, it’s a sign something’s off. But strong flow through means your extra income is doing its job and growing your profits.

3. Stay profitable during quiet months

Low seasons can be tough, but flow through helps you manage costs in line with revenue. That means more control and fewer surprises, even when bookings dip.

4. Know where you stand

Hotels typically aim for 35% to 60% flow through across operations, depending on their size and setup. Once you start tracking this metric, you’ll know if you’re on track or if there’s room to grow.

How to calculate flow through in a hotel

Flow through is easy to calculate; you just need the right data and the right formula.

The formula

Flow through (%) = (Actual Profit – Budgeted Profit) ÷ (Actual Revenue – Budgeted Revenue) × 100

This formula shows how efficiently you converted any extra revenue (above budget) into profit. You’ll need:

1. Your actual revenue and profit for a period (e.g., a month)
   
2. Your budgeted revenue and profit for the same period
   

Example

Let’s say your actual revenue for March was $25,000, and your budgeted revenue was $20,000. That’s a $5,000 increase.

Your actual profit was $10,000, compared to a budgeted profit of $8,000. That’s a $2,000 gain.

Here’s your flow through calculation:

• Flow through = ($10,000 – $8,000) ÷ ($25,000 – $20,000) × 100
  
• Flow through = $2,000 ÷ $5,000 × 100 = 40%
  

This means 40% of the extra revenue became profit. The other 60% was spent covering additional costs.

What’s a good result?

Flow through percentages can vary, but many small hotels aim for 35% to 60%, depending on the setup and season. If your flow through is lower than that, it may be time to take a closer look at where your costs are rising.

A quick tip

Check your flow through monthly, especially during busy seasons or after a marketing push. It helps you understand whether your revenue growth is translating into real profit—and what you can do to improve.

I don’t have to overthink Little Hotelier. Little Hotelier delivers, and it makes a huge difference when you trust a system. I absolutely love Little Hotelier’s efficiency which conclusively supports my aims and objectives as a hotelier.

Claire Moseley,

Owner

Derwent House

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Hotel tools to manage flow through effectively

Once you’ve worked out your flow through, the next step is making it better—and that’s where the right tools make a real difference. Managing costs, tracking revenue, and spotting profit opportunities becomes much easier when you’re not relying on spreadsheets or guesswork.

Here are some tools and features that can help you improve flow through in your hotel:

1. Real-time revenue tracking

Knowing exactly how much you’re earning day by day helps you stay in control. Look for systems that give you clear reports on bookings, rates, and total revenue so you can quickly see if you’re beating your budget—and how that impacts your profit.

2. Expense management

It’s easy for costs to creep up without noticing. A good property management system (PMS) helps you track your biggest expenses, like labour, supplies, and utilities, so you can act quickly if something’s off.

3. Reporting and analytics

Smart reporting tools let you compare actual vs. budgeted performance without spending hours crunching numbers. The easier it is to see your profit margins, the easier it is to improve them.

4. Integrated systems

When your PMS, booking engine, and payment tools work together, you spend less time chasing data and more time making informed decisions. That means better visibility into your operations and smoother cost control.

If you’re already thinking about how to track and improve flow through, these tools can give you more clarity, more control, and more confidence in how your hotel is performing.