How to start a hotel business successfully

What is a hotel business?

A hotel business is your way into the hospitality and service industry. Imagine working for yourself, enjoying a year-round holiday vibe and meeting new and interesting people every day of the week. Sounds fun, right?

If you learn how to run a hotel business successfully, and do things the right way, you’ll enjoy a deeply rewarding and highly profitable experience. For many people, starting a small hotel business is part of their dream life. If you’re starting to think more seriously about this dream, it’s time to start planning and preparing to actually launch a hotel business.

We’re here to help. This blog covers all the key decisions and steps involved in getting your hotel off the ground.

Is running a hotel business right for me?

There are plenty of reasons why running a hotel can be a great lifestyle and business decision. But it’s not for everyone. Being on call around the clock, juggling guest demands and sorting through a never-ending list of housekeeping and maintenance tasks can create a lot of pressure.

Be honest when thinking about whether you have the personality traits, motivation and work ethic to adapt to the hotel business and make a success of it.

How big is the hotel market?

If you’re thinking of entering the hotel market, you probably know it’s a wide and diverse one. There are more than 700,000 hotels and resorts worldwide offering more than four  million rooms worldwide. The value of the market is more than $1.2 trillion globally each year.

From budget to boutique, business and bed and breakfast, the hotel market caters to all types of guests. While Hilton remains the world’s most valuable hospitality brand, with its value up 35% even during the pandemic, Airbnb is currently considered the most valuable tourism and leisure brand with a value of $10.5 billion.  

The hotel market is expected to bounce back well after COVID-19. But, even where market conditions are positive, there’s still work to be done to make a hotel profitable. 

How do hotel businesses make a profit?

Put simply, a hotel makes a profit when it generates enough income from selling rooms to cover all expenses and then generate revenue on top of that. Revenue forecasting and financial planning should clearly show how your hotel will make a profit. 

To make sure profits are healthy, hotels must focus on:

• Increasing income (for example, developing a room pricing strategy, putting more time into marketing or adding another income stream by hiring out a large room for conferences)
• Decreasing expenses (for example, repairing instead of replacing, using tech to automate processes or buying supplies in bulk).

Hotel business costs for starters

The reality is that without access to a decent amount of cash, your hotel dream doesn’t have a realistic chance of getting off the ground. So how much does it cost to start a hotel, how much does it cost to run a hotel per day, and what costs will you need to be prepared for?

How much does it cost to start a hotel?

Data from the US indicates it generally costs $323,500 per room to set up a full-service style hotel. Other estimates suggest it’ll cost a cool $2.5 million to set up a medium sized 4 star hotel. Of course, the location, size and style will impact start up costs enormously. 

But you don’t necessarily need millions to get started with a small property. If you’re wondering how to start a hotel business with no money or on a tight budget, you only have to look as far as your own backyard. Borrowing money to build a granny flat or two, for example, and getting started on Airbnb can be a fast and affordable way to dip your toes into the hotel industry.

How much does it cost to run a hotel per day?

Hotel running costs vary significantly, based on all manner of factors: location, taxes and fees, wages, access to workers, supplies and materials, levels of luxury and amenity, to name but a few.

There’s simply no easy answer to this question. It’s rather a matter of identifying all of your potential costs, then converting them into a per day figure. This is a process that every hotel should undertake anyway, as your costs must form the basis for your room rates.

Key considerations when starting a hotel business

You may be itching to begin running a hotel business but you can’t neglect the planning stage in all the excitement.

Here are the factors to consider when starting a hotel business. They’ll guide you on how to start a small hotel, and how to run a hotel business in a way that maximises your chances of success.

1. Determine whether to start from scratch or take over an existing hotel business

Are you keen for a tree change and a guest house is part of that plan? Or have you worked in hospitality for years and have a clear vision of a boutique hotel that’ll plug a gap in the local market?

Your motivations and goals, along with your budget, will help you decide which is the best option here. Also remember that taking over an existing hotel business might still involve modifications, changes and additional work to get things working in line with your expectations.

2. Establish a solid plan for your hotel business

Get rid of any lingering doubts about whether you can really make your idea a profitable and fulfilling reality by creating a hotel business plan.

This plan will help you make a start, create an action plan, get employees and business partners on board, market your accommodation, track your goals and generally push onwards and upwards on your business journey.

Your plan should cover:

• Executive summary (a punchy summary of your vision, mission and goals)
• Industry and market analysis
• Competitor analysis
• Service and amenities
• Operations and management
• Marketing
• Distribution, revenue and pricing
• Finances.

3. Strategise and project your finances

Whether you’re starting from scratch or taking over an existing hotel business, staying on top of finances is absolutely critical before, during and after your launch. Doing the sums may not be the most enjoyable part of the process, but it’s the recipe for long-term joy…

So, grab a pen, paper and calculator and use this list to make a start: 

Startup costs

• Business or property purchase
• Leasing costs
• Business registration
• Legal
• Accounting
• Marketing launch
• Insurance
• Renovations or remodelling
• Phone and utilities
• Website setup
• Startup inventory
• Front office equipment
• Signage
• Room furniture and amenities

Ongoing costs: 

• Leasing costs
• Bank repayments
• Salaries and wages
• Phone and utilities
• Cleaning
• Maintenance
• Commissions
• Website and IT
• CCTV and security
• Other operating costs

Income: 

• Forecast based on market analysis
• Number of beds available
• Average price per room
• Expected occupancy rate
• Food and beverage
• Hiring meeting rooms

4. Understand the market and analyse your competitors

The hotel market is influenced by everything from local conditions and competitors to larger global trends and economic conditions. Do your research and understand the big (and little) things that might need to be considered as you launch a hotel. 

Understand how you’re different from your competitors, and how you can use that to your advantage.

A SWOT analysis can be a helpful framework to use here. This involves brainstorming ways you can:

• (S) identify and build on your strengths
• (W) work on your weaknesses
• (O) take advantage of opportunities
• (T) face threats head on.

5. Develop your hotel’s identity and branding

As you get to know your industry and your competitors, you’ll also form a clearer picture of the type of hotel that fits your goals and how you’ll position your business in the market. 

Your brand identity is especially important. This is your hotel’s personality. How people feel when they see your hotel online or in person. It’s the story you tell and the values you aspire to.

Your brand identity will be the key to attracting the right people to your hotel and creating an unforgettable experience for guests. Start by researching brands you admire, and looking at how they capture their brand on their website and in social media.

Then dig deep to develop a guide to your hotel’s brand identity. Cover things like logos, colour palette, fonts, imagery and tone of voice.

6. Get your hotel business permits and licences

Red tape is part and parcel of being in business and starting up a hotel. Ignoring it won’t make it go away so avoid the headache by crossing your t’s and dotting your i’s.

Find out what business licences and hotel permits are required by contacting your local council or authority, relevant government agencies and any hotel association in your local area or country.

7. Launch recruitment and implement training for hotel staff

If you’re running a small hotel business you might be able to do it all yourself, especially if you’re using hotel software to help carry the load.

But as you get closer to opening your hotel, you might also see areas where you need to bring on additional support. That might be outsourcing bookkeeping and accounting to a professional or hiring cooks, cleaners and front office staff.

Use your business plan to create a list of the tasks you need help with and the skills gaps that currently exist. Use this list to then create detailed job descriptions. Next, you’ll need to create a job ad and get it out to the right people through social media and job websites.

Make sure you ask plenty of screening questions before inviting a potential recruit to an interview and then ask targeted questions at the interview stage to really get to know the applicants.

Once you’ve found the right person, it’s not the end. It’s another beginning, so make sure you have a structured induction process and ongoing training to create a positive and productive working relationship.

8. Address property management needs

There is, of course, a lot to cover when it comes to running a hotel: managing reservations, check-in and check-out, rooms and availability, rates, guest communications, your website, other booking channels, housekeeping, maintenance, billing and more.

There are manual ways to manage all of these things. Think pen and paper or Excel spreadsheets. However, these days, many hoteliers take advantage of hotel property management technology to boost operational efficiency and deliver a better guest experience.

How to run a hotel business successfully

So the planning is reaching the pointy end and you’re ready to open your hotel business. Congratulations! Here’s how to get started on the right foot.

1. Hotel marketing

Your business plan should cover your marketing strategy for the days, weeks, months and years ahead. However, be sure to also cover the pre-launch phase. You want to introduce and reinforce your brand identity and create a buzz around the upcoming opening of the hotel. 

In the early days, useful marketing goals and strategies might include:

• Getting those first online reviews
• Partnering with social media influencers or booking sites
• Advertising with Google Hotel Ads
• Social media marketing

2. Opening your hotel

The actual opening of your hotel is a chance to reach potential guests and nurture relationships with stakeholders and members of the local community.

Make sure the event fits with your hotel’s brand identity. Will it be a lavish and luxurious affair to showcase the amazing features of your new five star establishment? Or will it be a more low-key dinner that highlights sustainability and allows people to enjoy the secluded ambience?

Whatever type of event you dream up, encourage a little buzz around it. Contact local media outlets who might cover the opening and invite those attending to share the news on their social channels.

3. Acquiring guests

If you’ve created an effective marketing plan and launched your hotel with a bang, you should have guests coming through your doors from day one. 

Other ways to keep that flow of guests coming through the door are:

• Getting your pricing strategy right
• Improving front office operations
• Improving your TripAdvisor ranking
• Investing in SEO
• Boosting international bookings
• Creating effective email campaigns

4. Build a strong online presence

The modern traveller books themselves, and books online. They identify a potential hotel, then conduct some research, searching different OTAs for the best rate, and looking across the internet for ratings and reviews, social media activity, and an opportunity to get a deal by booking direct.

These days running a hotel successfully is about building and carefully managing your online presence. You need to have a consistent social media presence. You need to monitor and reply to reviews. You need to carefully manage listings across all your booking channels. And you should create an alluring website that a guest can book through should they so choose.