Maximizing House Profit using Flex/Flow Calculations Part 1: What is Flex/Flow?

It is surprising how many hotel managers, operators, and owners do not have an understanding or an appreciation for flex/flow calculations.  The flex and flow percentages are a measure of efficiency when managing revenue shortages or overages through the financial statement to the house profit line.  While I certainly remember what it was like to just be happy to exceed bottom line; I have seen the light when it comes to maximizing it using these calculations as a guide.  If you were over $15,000 in revenues and only $1000 on the house profit line, would you be happy?  If so, you should keep reading this series and you’ll see why you shouldn’t be satisfied so easily.  Technically speaking these flex/flow numbers and goals will vary from hotel to hotel based on their variable costs.  In this series, I will give you an understanding of flex/flow, how to determine goals for each, and how to calculate it based on your goals.

What is the difference between Flex and Flow?

Determining if the property is in a flex or flow situation is very easy.  Just look at the revenue variance for the given period and use that as your point.  If the property is over budget they are in a flow situation and therefore you are looking for how much you flowed through to the bottom line.  If the property finished less than budgeted revenues, they are in a flex situation and as a result you are looking to see how well they flexed or controlled their variable expenses.  I realize that some companies look at both situations as flow.  Personally, I like to make the distinction between each situation.  You will see in part 2 the goals are most likely different for each situation and it makes it a little easier to grasp when they are each separated. 

Why is Flex/Flow important?

We have to face the reality that some expenses are fixed and some are variable.  The majority of the rooms’ department expenses should be based on Per Occupied Room (POR).  This means that if you rent more rooms than budgeted you will have more POR cost and conversely if you rent less rooms you should have less cost.  An easy illustration of how this works is bath soap, assuming the property has it in every room.  If the property doesn’t rent the room tonight, the soap will still be there tomorrow.  As a result we can conclude there is no cost for soap in that room for the day because you don’t have to replace it.  If you had sold that room, you would have to replace it and costs would be associated with that.  Another example is room attendant wages, continental breakfast, and the list goes on and on.  This is the theory behind POR costs.  The more rooms you sell the more of those expenses you are going to have.  We all instinctively know this, yet some fail to measure it.  The flex/flow calculations give you a way to measure that efficiency.   

In Part 2, I will give you some ideas on how to establish a flex/flow goal.

Hospitably Yours,

Justin

2 Comments

Filed under Expense Control, Justin Shelton

2 responses to “Maximizing House Profit using Flex/Flow Calculations Part 1: What is Flex/Flow?

  1. Jon Bottone

    60% Occ at $80.00 or 80% occ at $60.00? Very good article.

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