As per the records of 2020-2021, with more than 700,000 hotels and resorts and 16.4 million hotel rooms, the hotel industry is worth over $570 billion globally.
The rise of the global per capita income level and the rise of the tourism boom have also driven the development of the hotel industry. The hotel business also provides a good opportunity for many people to make money.
But it’s not that easy to open a hotel; you need to develop and implement a detailed hotel business.
Why Do You want to start a hotel business?
Obviously, when you find that the hotel business in your area is profitable, or when you find that the hotel business is good as far as you know, even when you say that you love the hotel business and want to own your own hotel, you could start a hotel business.
But in any case, the ultimate goal is to make money by investing in hotel sound.
So in this article, let’s talk about how to start hotel business step by step, but first, let us look at the return on investment for the hotel business.
What is a good return on investment for a hotel business?
Hotels can potentially have a payback of even 4-5 years if the product is built to suit the market and is managed well. The most practical answer to this question is that it is required.
So if you are thinking about whether the hotel business is good or bad, let us tell you it is good. The lack of facilities to stay in makes it important to build hotels.
Why start a hotel business? That’s a frequent question. If we talk about the ROI of hotels in India, then they get up to 10 to 12% per annum revenue. Considering the normal factors, the payback time will be more than 10 years.
But when we talk about building smart hotels, the case can differ a bit. The payback period of hotels can be around 4 to 5 years if they are built according to the market need and good hotel business management.
However, once the payback has been achieved, the annual cash flows provide excellent returns. High ROI is also seen when a hotel asset is sold, especially a stabilized, well-performing hotel.
There are several reasons; for instance when the pandemic situation gets over and regular life resumes, people will be more excited than ever to travel and go out.
Hence, developing the business during the slowdown will help the hoteliers make the most of the situation.
Because if we talk about the hotel business and covid, hotel business growth has got affected, but it’s coming back on track.
You may also think you need to start a hotel business now; let’s talk about how to start hotel business step by step now.
How to Start Hotel Business?
First, please think like a hotelier!
A hotelier’s prime responsibility is to provide a good service to its customers and guests. The service should be well-mannered and pleasing, which helps the guests to de-stress.
Let’s see what the preparations that you will require before starting your hotel business are. Can anyone start a hotel business? Of course not!
Here are what you need to do before starting a hotel business.
Hotel Target Market Research
Of course, you have to do some research about your hotel business target market. After going through a series of market research, you will be better able to decide to start a hotel business
1, Market Situation:
The hospitality sector has changed a lot in the last few years. The trends are constantly changing. If we try to reflect the customer’s needs, we can easily find important aspects like security, peace, and a good experience.
But the needs don’t end here; there are much more that you will need to do in the hotel business. You must determine the right plan for spending your budget.
Because the constantly changing circumstances also affect the priorities that should be focused on in the hotel business under the marketing plans.
2, Size Of The Hotel Market And Demand:
The Verified Hotel Market Research says that the cost of luxury hotel market size is around USD 93.37 Billion in 2019. This will soon go to USD 123.49 Billion by the end of 2027.
The growth rate CAGR data is around 4.1% from 2020 to 2027. The luxury hotel market revenue has increased, and the main cause behind this is the rise in leisure travel across the world.
Other factors like improved living standards and growth of the tourism industry are also important factors responsible for the growth of luxury hotel revenue.
You can also try for hotel business rental properties.
3, Market Opportunities:
Co-founder and CEO of Positive Luxury, Diana Verde Nieto, says, “Millennials are twice as likely to support brands with strong management of environmental and social issues, and expect brands to not only manage their impact but communicate it.”
Companies are trying to reformulate their working systems and stand up again after the blows of COVID-19, which made social distancing, stoppage of commercial activities, and remote working the most serious hurdles for the businesses.
These all are collectively promoting hotel business development. The question may arise about how profitable the hotel business is; we will discuss it too. The online hotel business market is also huge.
4, What Are The External Factors That Affect The Hotel Market?
External factors that affect organizational behavior and decision-making of other industries also affect the hospitality industry. Various factors come into play, but political, economic, and social factors affect.
1) Nature of the market and demand: The lower prices are decided by the costs, while the demand decides the upper limit.
Consumers and buyers are responsible for making the balance between product price and its benefits. That’s why marketers need to understand the equation of price and demand of a product before setting the prices.
2), Consumer perception of price and value: While setting the prices for the hotel, the management must see the prices and the way consumers take them. The process should be decided after considering the customer.
3),Analyzing the price-demand relationship: The high price of a product may cause its lower demand. So, the hotel should consider this point as well for deciding the prices.
4)Price elasticity of demand: The hotel should also consider the effects of change in the price on the demand of the product. If a change in the cost to a small extent doesn’t affect the demand, then it is said to be inelastic. But if the change in the cost affects the demand, then the price is elastic.
Unique value effect: If you want to avoid price competition, try differentiating your service from other competitors. This will help in balancing the price competition.
Substitute awareness effect: The price sensitivity is decreased if the awareness about alternatives is not much.
Business expenditure effect: If the customers’ bills are paid by someone else, the customer becomes less price sensitive.
End-benefit effect: If the cost of the product occupies a big part of the total end cost, then also the customers become more price-sensitive.
Total expenditure effect: This effect shows that the more the customer pays for the product, the more they will become sensitive to the product price.
Sunk cost effect: If the customers share an investment in the products, the chances are less that they will change for price factors.
Price quality effect: The customers directly compare the price with the quality of the product, especially if they are buying it for the first time.
Competition: It is important to consider the prices set by competitors before deciding on the hotel. For this, the hotel management should do proper research and gather information about the competitors, other hotels, and hospitality services. It is one of the most important hotel business rules.
Other environmental factors: Other factors like inflation, recession, interest rate, etc., that play an important role in deciding the pricing decision. If the government starts any new policies or rules, this also affects the hotel in various ways.
5, Who Are The Main Competitors In The Hotel Market?
The competitors can be divided into two categories.
First, direct competitors who directly affect your business.
Second, indirect competitors who affect the business in broader ways like restaurants, etc. They both affect the hotel business together in various ways. You will need to make a plan to make your business stand out according to these factors.
You must add a unique presence for your hotel among your competitors. Major participators of the hospitality industry like Four Seasons Holdings Inc., Intercontinental Hotels Group, Marriott International Inc., Hyatt Corporation., ITC Hotels Limited, Shangri-La International Hotel Management Ltd., and Jumeirah International LLC work on crafting a portfolio to make themselves stand out and flourish in the industry.
For instance, Jumeirah Group and members of Dubai Holding launched Jumeirah Inside in 2015. This enables the customers to pre-book their rooms from online mediums.
Knowing Yourself Better
What Kind Of Person Should You Be To Thrive In The hotel business?
Communication skills are very important in the hospitality industry to become successful.
Also, you need to be a good listener. This is a must in the hospitality industry, where the main motive is to serve the customers.
Your Skills And Experience
Hospitality skills are very important to manage a hotel. But skills don’t come just by studying or learning over a night. You need to be patient and work consistently towards developing your skills.
Also, it is important that you continuously try to improve your learning concepts through practice. Experience also plays a major role and also improves your skills further.
With time, you will realize the important things and the trivial things of the business. Constant learning is the only key to success in the hospitality industry.
Make Hotel Business Plan First
Starting a hotel business is just not hosting a few people at your place and charging them. It takes way more than that. A good hotel should be a place where guests feel relaxed and enjoy their time.
It is important to focus on the guest to make your hotel business successful. The satisfaction of your customers decides the goodwill of your hotel.
In the world of digitalization, customers can easily show their feelings towards your hotel through reviews, either they are positive or negative. There are also various hotel business review magazines.
The most important and basic step of your hotel business is making a plan for it. When someone wonders how to start a hotel business, the answer is simple: prepare the best hotel business plan.
It helps in strategizing as well as in saving time for your business. Without a proper hotel business plan, you won’t understand the direction you should go in.
That’s why planning is very important for your hotel business.
1, Do You Want To Build, Buy Or Rent A Hotel?
A franchise hotel costs around $195,000, according to the data of entrepreneur.com. This is just the startup cost; there are several more hotel business expenses.
After buying the place, you will need to look after the payroll, taxes, utility payments, etc. Also, can’t forget the upgrades, furniture, etc. Owning a hotel is not that easy to start.
Like any other industry, the hotel can earn profits after paying its expenses, but in the case of hotels, the major expense is the rent.
The structure for rents will depend upon the risk appetite of the investor. There are options for lease and renting also. A lease is an amount paid by the tenant for a property to its owner.
The hotel company takes all the financial obligations, and the place owner only provides the building. The benefits are also obviously all under the control of the hotel company, along with all financial matters.
The hotel just needs to pay the rent for the place, and there is no share on the profit by the owner of the place.
Also, all losses are taken care of by the hotel itself and not the owner, along with all the profits.
2, What type of Hotel Do You Want To Build?
The hotel can be of several types. The type also determines the kind of customers because your hotel communicates the essence of your business to its potential customers.
Size: USA Today says that the optimal size of a hotel room is around 325 square feet and interior dimensions of around 13 and 25, including the bathroom space.
Any average hotel in the US conducts 115 rooms, which means that it will require around 48,000 square feet of space.
If we consider large hotels, they conduct more than 100 rooms regardless of the engagement of several rooms.
Design: Several factors have to be considered while designing a hotel. Design considerations include Captivating Appearance, Efficient plan, Good site location, appropriate material, Good artistry, Management, and Budgeting.
Design is important as the looks and appearance of the hotel also play an important role in attracting customers. The design should be based on universally accepted principles to target a huge part of potential customers.
Various factors come into play for deciding the type of design for a hotel like pleasing appearance, efficient planning, good site region, material, human resource, budget, management, etc.
The hotel plan template also comes under design construction.
Style: There are various options available at the current time for the customers, that it can get confusing to choose one.
The hotels describe their amenities in particular ways; you can easily see this on their online pages and intros. They use descriptions like eco, design, boutique, etc. Capsule design of hotels provides small areas or tiny accommodations for its customers.
It also provides an advantage for them. There is also a new type of hotel named a pop-up hotel. Mostly such hotel setups are arranged around the regions where a particularly large event is happening.
Next on our list is Poshtel hotel, they are an upmarket hotel. They are similar to boutique hotels. So if you are thinking of setting up a hotel, you should consider getting in touch with hotel business brokers. They can help you understand the current market trends.
3, Hotel Business Budget And Benefit
How Much Does It Cost To Start A Hotel Business?
The answer varies according to the expenses of buying or building a hotel, the type of hotel, whether it’s a budget hotel or luxury hotel, size of the hotel, etc.
Why is the hotel business good? Because you get many chances to get profit. If you want to register the hotel in the USA, then it will cost around $750.
And the price increases in multi-folds for the five-star deluxe properties costing around Rs 75 lakh to Rs 1.8 crores issued by the Federation of Hotel and Restaurant Association of India [FHRAI].
In Japan, you can set up the establishment in 1 yen through the Companies Act of Japan, but you still require to invest more than 5 million yen for getting the entitlement of ‘Business manager’ visa status.
The cost of a hotel business license varies according to the different states and their rules. Let’s see all the hotel business rate calculations, along with answering your question about how to get into the hotel business?
Location: The decision regarding the setup of your hotel business structure in a particular location is also essential, as it will decide the position of your hotel in the market and how guests will find your hotel attractive.
Quality: This talks about the cost of the service, like a five-star hotel is going to be costly compared to a roadside normal hotel.
Size: The size of the hotel also plays a major role in determining the cost of the hotel. The number of rooms, spaces, or restaurants will be the price.
Land: This is mainly about the real estate price of the hotel.
Soft Cost: If a hotel is using more software, then the cost also increases. If the hotel is small, the cost might seem like a huge surplus amount to get all the needed software to run the business.
Software programs are used for property management, hotel management, communication, bookings, etc. It also includes hotel business facilities or games, hotel business lounge, hotel business suites, etc.
FF&E: FF&E means Furniture, Fixtures & Equipment. This encompasses all the entities like building desks, electronic equipment, hotel lock system, computers, etc. Sometimes it is also referred to as hard cost.
Pre-Opening & Working Capital: Even before the hotel’s opening, you will need to hire staff for various operations along with a lot of other pre-opening management tasks.
This will require a salary fund and preparation fund. Also, there is certain hotel business law that needs to be followed.
You will also need to create a sample hotel business plan; you can search online for references for hotel business plan examples. The hotel business GST should be considered too.
Construction Cost: The cost per square foot building a hotel business structure varies greatly.
Because there are various types of hotels, they require different factors to perform optimally, like amenities, areas, etc. The hotels located in urban areas have a higher cost than hotels located in rural or remote areas or suburban areas.
So the range of hotel business rates goes from $134 to $550 per square foot. These are some hotel business tips that will certainly help you. You can also contact a hotel business analyst for better estimation.
Also, here is a video about Hotel Budgeting & Forecasting Online Cours for your reference.
The price of food, beverage, utility costs, etc., comes under operating expenses. Such expenses are required in every department, whether it’s rooms, sales, marketing, etc.
How Does The Hotel Business Make Money?
The main source of income for hotels is by charging for rooms, but things like food sales, beverage sales, alcohol sales, conference room sales, etc., add to the revenue.
A right profit-giving hotel business investment will be defined as the one which allows returns continuously on invested capital along with increased promoter cost of capital.
It should also provide the chance to quit the advantage when a better investment return opportunity comes up. It is essential for hotel owners to evaluate their assets timely, maybe once a year.
This allows them to know how they are managing their capital.
How Much Money Can I Earn By Opening A Hotel?
The most known earning of hotel owners is around $40,000 to $60,000 annually.
If we consider the inflation because there is no further update in the data since 2009, then right now, we can say that the average hotel business profit margin for the owner will be around $49,000 to $74,000 annually.
How Much Can You Charge Customers?
The best way to set the prices of the hotel is by taking into consideration demand value. This indicates that the price of the hotel will depend on the demand for its rooms or services.
Like if the demand is high, then the prices can become high too for getting high revenue.
Where To Raise Funds For Starting a Hotel?
Borrow from friends and family: If you wonder if taking a loan from vendors, various stressful factors come with it. Borrowing money from friends or family will be better in that way.
Put your savings on the table: If you have savings, and you are borrowing from your friends, then using your savings will be needed in most cases.
Get a commercial mortgage for a hotel: It is also a practical way of getting funds, but you will need to make an amazing hotel business plan. The banks will determine the amount and time of repayment according to the plan.
Crowdfunding is a new and modern way for connecting with customers and getting funds. It is quick as well as beneficial in economic terms.
Angel Investors: Angel investors are the best way to get funds as they don’t just provide the funds but also very valuable knowledge that can be helpful for your business.
4, What services does your hotel offer?
What are Facilities in Hotel Business?
Breakfast: Hotels also provide open-buffet breakfast for the customers that complement hotel business room bookings or regular room bookings.
Room Service: Most hotels offer 24 hours room service to make the guests comfortable. You can click here to look at the room service menu.
Internet Access: Whether in rooms or public areas, hotels provide fast-speed free internet services.
Free Shuttle Service: The hotels also offer free accommodation service for the guests, which they can use for shopping or entertainment.
There are other services like:
Rooms for disabled
Swimming pool/ Jacuzzi
Gym and spa
Round the clock security
How To Make Your Business More Profitable?
Inviting local entertainers, musicians, bands to your hotel regularly and planning their performance in your hotel can be beneficial for your hotel in gathering the masses.
Try to make your hotel a community hub for locals. It is called augmented hospitality by AccorHotels. It means that hotels offer everyday services to the locals other than lodging that help them solve their day-to-day problems.
For any hotel, it can be beneficial to become a pet-friendly property, as many people want to travel with their pets.
Provide your hotel services like pool, gym, housekeeping, etc., amenities to your local rental properties. In London, Bermondsey Square Hotel provides its housekeeping, maintenance, etc. Such services to Airbnbs are within a one-mile distance; they also get access to communicate with the hotel manager in case of any query.
Try to make your hotel kids-friendly; it won’t just help attract more families that travel along with their kids but also attract your local community. The services like recreational activities, pools, camps, etc., can help in uplifting your hotel.
A hotel is not just for travelers. Your local people might also want to take part in it. So, try to offer facilities like a gym, pool, etc., to locals through membership.
Create Your Unique Value Proposition (UVP)
When we talk about hotel marketing, we often forget about the term value proposition but actually, it is essential. It is an important part of making your hotel stand out and attract more guests.
1. A Clear Headline: When a potential guest visits your website, the heading is the first that comes to their mind. If it’s interesting enough to get her attention, then she might stay. Similarly, your hotel business name is also important.
2. A Visual Element: Images play an important role in communicating your brand message. Use images to improve the communication with your guests and get their attention. This also includes your hotel business card template.
3. A 2-4 sentence paragraph: It signifies the description of your services like what you provide and to whom and why it’s different from others, etc. But make sure not to overcrowd your website with irrelevant stuff.
4. Bullet Points: It is the place where you will describe the benefits and key features of your hotel. Make sure not to make it look more detailed than required.
What Makes A Successful Hotel?
The hotel industry thrives on location.: if you are thinking about where to start a hotel business, let us tell you that the place or region where your hotel is situated plays a very important role.
Keep an eye on those reviews. Feedback is important to improve your services but doesn’t just rely on feedback forms. Many other places where your guests might review your hotel, like review sites, social media, etc.
You will need all kinds of hotel business news about your business. The hotel business reviews are important to consider.
Give customers an innovative experience. The modernized hotel industry is just not about accommodations and room services anymore.
Nowadays, it is important to provide an all-inclusive experience of the hotel to your guests. Young travelers may get interested in other hotel activities like live concerts, pools, spas, etc.
The hotel business card design, hotel business outlook, etc., also should be focused on. Many people wonder why the hotel business fails, then let us tell you it is one of the main causes.
5, When To Build A Hotel?
How much time does it take to build a hotel?
There were more than 6000 new building projects that got completed in the last two years.
Among them, 5000 were residential buildings while 200 were hotels and retail buildings. TRD says that the normal time for completing a hotel project is around 3 years and 11 months.
Other questions come to mind, like how to do hotel business or how hotel business works? We will answer them too.
6, Hotel Brand And Service
How To Promote And Market The Hotel Business?
Marketing is very important for your hotel to launch a good business, optimize the bookings, create brand awareness, and manage the hotel’s image.
Increase your online presence.
Remarketing is important because travelers often get distracted by many things, and plenty of options are available.
Various hotels manage diverse customers because they offer various services like presidential suites and discount rooms. These customer bases need to be bisected into two different parts and target in two sections.
There can be two different chains of the same hotel in two different locations with different features. All these need to be taken into account while considering the marketing campaigns.
Hotel Management Vs. Business Management
For increasing the revenues of a hotel, the hotel manager is responsible.
The marketing manager looks after the marketing and image of the hotel along with participating in various other operations like satisfying the customers from the hotel service, etc.; regular customers bring a big part of the revenue.
So the marketing strategy should be targeting both. It should focus on creating new relationships with clients while managing the past ones. The business manager is responsible for managing the business and employees of the company.
They try to implement various policies to ensure that productivity is maintained, supervise the employees, manage business policies and strategies, etc. The business hotel vs. hotel can be seen as an important factor. B
because we want to focus on the revenue mainly.
7, Ask Permission And Zoning
To fulfill the legal entities for the business, you will need to register with tax along with discussing with Open Commercial Bank Accounts and Credit Cards and other business accounting-related operations.
For starting a hotel, it is important to have certain licenses and registrations in India. Many of them are needed before the initiation of the hotel business process.
They also need to get renewed after a certain period. All hotel business licenses and registrations require the hotel to follow certain rules and regulations.
Fire Safety Permit
Police License for Hotel
Health Trade License or Trade License
FSSAI Food Business License
Administration Tax Registration
8, To Raise Start-Up Capital
If you can, then you should try to raise start-up capital for your business. This will need a good hotel business plan. There are many methods for doing it; let’s see some of them here;
You can try taking a small business loan. Try to work on enhancing your chances of getting a loan.
If you have bigger plans, then try to discover angel investors who can help you. You can get some advice about pitching to angel investors from Geekwire.
You can also try to discover some venture capitalists who provide amazing, useful advice.
You can also create a crowdfunding campaign that allows various people to donate to your business. Furthermore, you can get the tips here.
You can also try to contact incubators to help you communicate with potential investors. Furthermore, you can get guidance for it through Entrepreneur Mag.
Next, come friends and family. They might help you, but make sure to present your business plan with full preparation and without getting sloppy.
When you ask for money from someone, always be clear about the amount and numbers required. Make a good plan to present in front of the investors while looking for funds.
9, To Get Commercial Hotel Business Insurance
Commercial property insurance includes the real estate held by businesses from threats like fire and wind. Many of them also cover the tools and supplies that are stored in the insured property.
The hotel buildings are mostly very costly. Check your insurance amount that covers the expenses of building construction if it gets damaged due to any peril.
10, Recruit Staff For Your Hotel
A budget property hotel requires approximately .25 employees per room, while the mid-range hotels need 0.5 employees per room. If we talk about large-scale hotels, then they need 1.5 to 2 people per room.
So if we try to estimate employees for a 300 room large hotel, then it will be around 400 to 600 people to manage the hotel efficiently. This also helps in understanding the hotel business valuation.
Create a detailed staffing plan that outlines every role you’ll hire for to ensure you’re covering all your bases and not leaving anything out. Once you know the total staff you need, the next step is hiring the staff and the number.
You can try the WETCO approach for the skill set determination, which tells hospitality employees the most important five skills: warmth, empathy, teamwork, conscientiousness, and optimism.
Understanding the needs of an ideal candidate will help you to hire good candidates. You can post about hotel business jobs on your website too.
11, Build Hotel Management System
Hotels are inclusively very complicated and energy-driven, where the information doesn’t easily get communicated. The maintenance is also not easy.
The goals for a good hotel are decreasing complexity, increasing hotel efficiency, and decreasing energy use. But the service for the guests must not get compromised.
Connected hotels are more helpful in such cases as they reduce expenses while enhancing proactive maintenance.
12, Create Your Corporate Hotel Website
In the world of digitalization, creating a website is important for your business. While creating the website, the hotel owners can choose a simple website builder or choose a web designer to create a custom website.
The hotel business logo is also important. The hotel business design theme makes a great impact on the customers.
Your hotel website needs to have:
4.Direct booking engine
6.COVID-19 info page
9.Useful, relevant content
10.Tracking and analytics
13, Set Up Your Corporate Phone System
Hotel phone systems are responsible for looking after the communication of the hotel, whether internal or external. Internal calls mainly happen between the guests and the hotel staff like front desk, laundry, housekeeping, etc. It also includes a conversation between hotel employees.
External calls occur between outside the hotel leads and hotel employees, like calls with guests, suppliers, etc. IVR is incorporated into hotel phone systems to help callers; call center-like features like call statistics, etc.
14, Train Your Team
The training of the employees begins at the time of orientation mainly. The orientation helps in telling the employees about their responsibilities and the culture along with the guideline.
It should also introduce employees to the brand story, like its history, foundation, vision, mission, etc.
It would be best to tell them about the hotel business objectives, the business vocabulary used, the hotel business report, the hotel business description, the hotel business continuity plan, etc.
HR admin: The HR admin does all the paperwork and talks about the benefits.
Employee resources: The expectations from the employees should also be introduced, like dress code, regulations, etc.
A right and efficient orientation will help your hotel business to go on the right track. The hotel business is profitable if managed well.
Continuous learning is the key to becoming successful in the hospitality business. When you try to uplift the skills of your staff, then it also makes them feel valued, and they show more loyalty towards the brand.
Make a professional development budget for the staff to help them enhance their skills.
You can also create online database management to enlist all the training courses given by Tipsy, which will help them enhance their skills and hospitality.
You can offer various courses of hotel business schools and hotel business books, and hotel business journals to them.
For taking inspirations for your hotel business, you can study various other hotel businesses like:
hotel business in the UK, hotel business Jihlava, hotel business life Istanbul, hotel business Villa Omori Tokyo, Sunrise business Hotel Ximen, business hotel Yamashiro Shinjuku, Business hotel Yokohama, business hotel Yamashiro Tokyo, business hotel Yamashiro Pantip, hotel business Zug, Marcian business hotel Zamboanga, Hamilton business hotel Zamboanga, hotel union business Ljubljana, business hotel Yamashiro, business hotel Kota Damansara, hotel business Zug Ag, business hotel Zurich, business hotel Jakarta, hotel business the UK, etc.
At this point, if you have completed all the above step-by-step hotel business plans, then you can try to open your hotel with some promotional activities to get your first batch of guests.
Please remember that we must communicate with customers promptly and solve various problems encountered by customers during the check-in process to improve the quality of hotel services in the early stage.
Hope this comprehensive hotel business guide will help you build hotel business better and win successfully!
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