What is a hotel business?
A hotel business is simply an establishment that offers guests a place to stay. The term ‘hotel’ can refer to a specific type of accommodation – a large building filled with small, serviced rooms that are used for short-term stays – or it can be more broadly applied to refer to almost all types of accommodation, from bed and breakfasts, unserviced apartments, glamping and more.
No matter which definition you use, the ultimate goal of all hotel businesses is the same: to attract more guests, fill more rooms, and maximise the value of every booking. Table of contents
Table of contents
How much does it cost to run a hotel per day?
It’s not surprising that the bottom line is the ultimate indicator of success for many people. If you’re in the green, then you’re doing something right.
To build a strong foundation for financial success, have a clear financial plan before you start. One that answers the above questions so you can start the business with confidence.
To estimate the cost of running a hotel, list all of your startup and ongoing expenses. Here’s a basic list to get you started.
Start up costs:
- Purchasing the property
- Decorating, furniture and room equipment
- Kitchen and bar equipment (for properties offering this option)
- Pool equipment (for properties offering this option)
- Legal and accounting costs, other consultancy fees
- Staffing costs
- Water, electricity and other utilities
- Laundry and housekeeping costs
- Care and maintenance
- Ongoing business expenses and subscriptions
Once you have calculated your costs, you can then do some quick sums to work out whether you can expect to make money in the weeks, months and years ahead.
RevPAR, or revenue per available room, is one the easiest ways to predict revenue for a hotel. Simply multiply your predicted average daily rate (ADR) by your occupancy rate. For example if your hotel is expected to be occupied at 80% with an ADR of $200, your RevPAR will be $160.
To ensure you’re operating at a profit, you’ll need to understand pricing at your hotel and optimise your pricing strategy so that you maximise the revenue that you generate per room and per guest.
Some of the common strategies for pricing are:
- Open pricing: allows hotels to drop rates in the off-season to ensure consistent occupancy rates
- Value-added: focuses on premium deals and packages over low rates
- Discount: boosting occupancy levels by dropping base rates and making up revenue through other hotel services
- Price per segment: offering the same product at different prices to different people (for example, a “family rate”)
- Length of stay: means requiring minimum stay periods during certain periods such as weekends
- Positional: basing rates on reputation and brand
- Penetration: finding guests by being the cheapest in the market
- Skimming: positioning your hotel as the most expensive in the market (and giving guests a reason to pay that extra amount)
To stay profitable, pricing is just one part of the equation. You’ll also need to stay on top of the many other things that’ll help you run a hotel business effectively.
What is the average profit margin of running a hotel?
Before we look at what profit margin you should aim for in a hotel business, it’s important to note that every hotel business is different, some remarkably so. There will be a huge disparity between the financial expectations of a luxury hotel in the middle of a major city versus a three-room rural B&B run by a semi-retired couple.
That said, if you’re looking at how to run a hotel business successfully, you should aim for a profit margin of 5%-15%, which represents the industry average. Luxury hotels tend to have higher profit margins than budget hotels, and hotels in areas of high competition will face lower margins than those in areas of low competition.
What makes a hotel business successful?
To achieve success in anything, we need to know what we’re aiming for. So, what does success look like when it comes to running a hotel? What defines a great hotel?
To start with, your hotel needs a business plan with clearly defined business goals. Those goals are created by getting specific about:
- What are your business objectives? Where do you want to be? (For example, increasing web traffic by 50% and direct bookings by 15%)
- When do you want all this to happen? Within the next 12 months? Or do you feel it’s a realistic goal for six months’ time?
- How will you make this happen? Break each goal down into specific steps and actions.
- Who will you need to reach to achieve your goals and who will help you to get there?
By having a plan in place, and your goals defined, you have a clear way to track and measure your hotel’s success.
Tracking hotel business metrics
Whether they are included in your business plans and goals or not, business metrics are another way to objectively measure the success of any business.
Reputation is a good measure of how a hotel is tracking, and online reviews provide a good snapshot of that reputation. Positive feedback says your hotel is going well and encourages more people to book a stay. More than 8 out of 10 people say they always or frequently read a review before booking a place to stay and more than half say no reviews means no bookings from them.
Of course success comes in many forms, and in business there are plenty of other metrics that hotel managers can use to build a picture of success, including:
- Total revenue
- Monthly profit or loss
- Net promoter score
- Conversion rate
- Website traffic
- Occupancy rate
Another way people measure success is against their own goals and expectations. Having a business plan with clearly defined goals in place provides a clear path to success and a yardstick for measuring progress.
How to run a hotel business with success
Armed with this understanding of what we mean by success and how we can measure it, here are 15 things you can do today to start running your hotel (more) successfully:
- Create three goals that you want to achieve in the next month. Make them SMART – specific, measurable, achievable, realistic and timely.
- Create three SMART goals that you want to achieve in the next 6 months.
- Create three SMART goals that you want to achieve in the next 12 months.
- Download and complete our hotel metrics formula sheet to see all your important hotel metrics at a glance.
- Set up a system for managing your hotel’s online reviews so that all comments, whether positive or negative, are addressed.
- Encourage happy guests to post about their experience in a post-stay email or on check out.
- Get a better understanding of your ideal guests and guest segments.
- Create (or audit) your hotel’s social media strategy.
- Consider working with influencers or travel bloggers to extend your reach.
- Find out about TripAdvisor Plus.
- Focus on improving your hotel’s SEO.
- Make your hotel more discoverable by reviewing your booking channels against available booking channels and those used by your direct competitors.
- Invest in cybersecurity, a great website experience, guest relations and staff satisfaction to help protect your hotel’s reputation.
- Leverage your location by showcasing it with high-quality website images, hash-tagging it on social media and taking part in local events.
- Don’t forget to encourage and reward guest loyalty.
How to become a successful hotel business owner
As owner or manager of a hotel, you are central to the hotel’s success.
Your traits, skills and decisions can have a huge impact on the hotel’s direction and success. Your enthusiasm is also essential, so it’s important to always remind yourself of the things that originally motivated you to venture into the hotel industry.
Continue to hone your communication skills, as the value of these just can’t be overstated for people working in hotels. You need to be a clear communicator who can listen well and step into the shoes of each guest.
Train your staff to develop their skills in this area, too, so you can impress your guests at each and every point of contact.
Being able to delegate and knowing how to empower your managers is another part of being a successful hotel owner or manager. You need to spend time in your areas of expertise and delegate the tasks that other people can handle better than you. And when your managers can act with flexibility, this will help reduce problems in critical situations, accommodate guests with special requests and generally help the front desk run more smoothly.
A great hotel owner or manager is also vigilant and observant, knowing that first impressions and the little details can make or break the guest experience.
Hotel business owner personal traits and skills
These can mean the difference between good and great as a hotel owner or manager. Some to look out for include:
- Decisive: Are you confident enough to make clear decisions in difficult situations?
- Able to motivate: Do you encourage and inspire others to perform at their best?
- Willing to embrace change: In a rapidly evolving industry, do you keep up-to-date with industry news and are you ready to explore new and innovative ways to do things?
- Organised: With so many competing priorities, can you manage it all and still keep smiling?
- Confident with tech: Can you identify and implement the right technology?
How to start a hotel business
Where do you start when it comes to running a hotel? There’s an enormous amount to cover, but starting with these things will help set you up for success.
No matter whether you’re wondering how to start a small hotel business or how to start a boutique hotel, the formula largely stays the same no matter what size or shape your hotel takes.
One of the first questions you’ll have is ‘how much does it cost to start a hotel?’ Obviously the answer will depend on a wealth of different factors: where you start your hotel business, whether you buy or lease a property, how much work that property requires, the size of your hotel, the amenities you plan to offer, how many staff you need to hire, and much, much more.
It’s up to you to understand these costs, secure financing and create a financial plan for your business. You’ll also need to understand your regulatory and legal responsibilities, which can be unique to your area.
Here are a few other factors to consider when starting a hotel business:
- Have a plan and priorities: A business plan, financial plan and marketing plan will help you focus on your priorities and direct your efforts towards things that will have the greatest impact
- Know your target market: What your guests love and want is information that’ll help guide many of the key decisions involved in running a hotel
- Make the most of your location: Many guests will be visiting the location first and your hotel second, so make sure you highlight your location in everything you do
- Focus on communication: Many problems are a simple result of miscommunication or lack of communication, so communicate regularly and keep things consistent, clear and on-brand
- Always listen: Whether it’s staff, guests or consultants, listening well can help you identify (and quickly iron out) problems and take advantage of opportunities
- Streamline front desk operations: Have the right people, processes and technology in place to make your front desk efficient, organised and capable of handling problems (big and small)
- Manage your brand and reputation: Your reputation is powerful, so protect it by monitoring online reviews and creating a strong brand that people can connect with
- Invest in digital marketing: Create buzz and excitement, get more bookings via Google and stand out from the competition with smart digital marketing strategies
- Hire the right people (and train and empower them): Your people will carry you towards your goals so make sure they have the right experience, skills and training along with a genuine passion for the industry
- Delegate more: Once you have the right people on board, trust they can do a great job by delegating tasks and responsibilities that fit their role
- Create a positive work culture: Fostering social connections and being empathetic and encouraging can create a positive environment that’s more productive and benefits employers, employees and the bottom line
- Get crystal clear on your hotel’s unique selling point: The thing that makes your hotel different will also be the thing that helps you and your hotel succeed
- Don’t forget housekeeping: Cleanliness is expected at hotels, particularly in COVID-19 times, so make sure your housekeeping standards are always high.
How to run a hotel restaurant
A great hotel restaurant will not only be a drawcard for guests, it will also attract the locals who are looking for another dining option.
Quality and positioning is important: aim to establish a restaurant in its own right rather than just a hotel restaurant. Consider creating a website and social media presence exclusively for the restaurant.
When running a hotel restaurant, be sure to focus on these four key areas for success:
If you’re serious about success, you’ll need people with the experience, dedication and talent to bring your hotel restaurant vision to life. The size of the restaurant will guide how many people you’ll need on board, but it’s likely you’ll need a hotel restaurant manager, kitchen staff and service staff.
Create and customise a menu that aligns with your hotel’s brand and values. Will it highlight local and seasonal produce? Will it focus on a particular cuisine? Will you offer a kids menu? Whatever you’re aiming for, get your kitchen staff on board to create a menu that will allow the restaurant to deliver quality food that people will come back for.
People eat with all of their senses, and a space that’s comfortable with inviting furniture, decor and lighting is a must. Differentiate it from the rest of the hotel. Set the mood for different meals so that guests who visit for breakfast walk into a whole new space to enjoy their evening meal.
Hotel guests will expect to be able to order room service and charge meals back to their rooms. Have these things set up for a seamless guest experience.
How to run a small hotel business
Running your own small hotel business can be a rewarding challenge, as with smaller size comes greater control over your destiny. Here’s how to make your small hotel a success with the help of technology.
Offer a personalised guest experience
Every guest should feel like your most important guest. Technology can be a huge help in this effort, from capturing information during the booking process, to helping you craft more customised and engaging messages before, during and after a guest’s stay.
Implement efficient operational procedures
The most successful hotels run like well oiled machines. Develop step-by-step systems and procedures that ensure tasks are completed correctly and efficiently. Identify areas where technology can take care of the low value work, freeing you up to concentrate on the high value stuff.
Execute wise revenue management
One area in which technology can make you more efficient and effective is revenue management, by centralising and simplifying the collection and analysis of financial data.
Craft a compelling online presence
Your website, OTA listings, metasearch, social media: the greater your online presence, the more business your hotel will win. Use the SiteMinder channel manager to bring all your booking channels together in one portal, for more efficient management.
Running a hotel business: Tools to help you achieve your goals
It can be overwhelming to think about everything that goes into running a successful hotel. However, hotel technology can introduce efficiencies and insights that take away the pressure, attract more guests and accelerate your success.
Some of the most powerful tools are:
- Channel manager: showcase your property on all the top performing booking channels and manage rates and rooms in real time
- Hotel booking engine: a seamless way to attract visitors and convert them to guests, this tool allows not only more direct bookings but it can also be connected to Google Hotel Ads
- Hotel business insights: make smarter decisions with clear data on your market and performance that allows you to optimise your pricing and distribution
- Global Distribution System: gives you the opportunity to tap into new and lucrative markets
- Payment processing: integrated technology for a simple and seamless way to take payments and process refunds in a single click
- Hotel apps: for check-in, messaging, ancillary services and more