How to Start a Hotel Business in 9 Easy Steps

Aspire to run a hotel business, but the saturated market scares you? If yes, let us break the ice. The hotel industry is on the rise, with a projected growth of $120.90 billion by 2027. Clearly, there’s still space for new entrants to impact and contribute greatly to the economy.

But the industry’s profitability doesn’t decide your success. It’s the degree of risks you’re willing to take and the efforts you’re ready to put in that make you a successful hotel owner.

Now if you set up hotel business armed with the knowledge of industry trends and target audience’s needs, you’ll start witnessing real growth in no time.

Here’s a detailed guide on hotel startup—industry overview, tips to make it a success, costs involved, challenges (with solutions), and a step-by-step process on how to start your own hotel.

Overview of the Hotel Industry

The hospitality industry in the US is expected to grow by around $6716.3 billion by 2028. With the rising number of international travelers visiting the US for business trips and holidays, the hospitality industry in the US is booming.

Wondering what’s one of the top contributors to the hospitality industry’s success? It’s the hotel industry, for sure, with a $200 billion annual revenue in the US. This is because some of the top hotel chains–Hyatt, Marriott, Hilton, and Wyndham, sprung up in the US. Although they are the largest contributors today, they started small before launching their global chains. 

In the age of Airbnb, where owning a ‘hotel’ often starts with listing existing properties, there’s still space to enter the hotel market in the US. You must be more strategic to stand out in the saturated hospitality industry.

Let’s now move on to how to open a hotel.

What Makes a Successful Hotel?

Starting your own hotel business can get overwhelming, but with the right strategies, you can get your nascent hotel up and running successfully. Here are 5 strategies that’ll level up your game from the start:

1. Top-notch Customer Experience

The secret of success in the hotel industry starts with delivering an unforgettable experience. Be flexible to accommodate demands you don’t usually offer to gain an edge–serving vegan food on special requests, for instance. 

Another critical thing is to treat different sections of customers differently. For instance, a family hotel should have play areas, a homely vibe, complimentary convenience services, and a kids’ menu. In contrast, a luxury hotel must include lavish interiors and high-end services that pamper and satisfy guests. 

2. Incorporating Feedback

Your hotel business plan’s success highly depends on how equipped you are to incorporate customer feedback. To know about customer experience, keep checkout feedback forms handy and check your and your competitors’ hotel reviews online. 

Once you know the reviews, improve the points your customers didn’t enjoy during their stay. Remember to enhance your strengths while working on your weaknesses.

3. A Unique Marketing Plan

Owning a successful business with a competitive advantage is possible only if your marketing strategy is ‘one of its kind.’ Establishing strategies on how your hotel can stand uniquely among competitors is one of the ultimate key decisions to achieve success. 

For instance, low-priced suites, women travelers’ dedicated floors in hotels, and last-minute rooms for VIP guests are some unique selling points that can boost your hotel’s demand. Your USP is why customers choose you over competitors, so craft your strategy wisely. 

4. Right Location

Deciding your location according to the spots you like or the number of hotels around will not increase your demand. The right step is to align your location with your offerings, business scale, and budget.

For instance, if your target group is working professionals, place it around business areas. For hotels serving tourists, it’ll be wiser to place them around areas with high accessibility from airports and train stations.

5. Be Tech-savvy 

Investing in technology is necessary for growth, especially today. Initially, catering to all business verticals like marketing and accounting can be tough as a sole owner. 

To make it easier and technically upgraded: 

• Leverage efficient software for different business functions–customer relationship management, booking reservations, and accounting, for instance. There are excellent accounting software for the hospitality industry in the market. 
• Set up hotel business website to portray your hotel as a once-in-a-lifetime experience.
• List your property across distribution channels, such as Booking.com and Expedia for easy discoverability.

How Much does it Cost to Start a Hotel Business? 

If you aspire to become a hotelier, you must be prepared to invest $1,000,000 for a small hotel and $22,000,000 for a 115-room hotel. Yes, starting a hotel is a huge investment that varies with location, scale, and service standards. Also, offering complimentary services–restaurants, spas, and meeting areas add to the bill. 

Here’s a breakdown of the overall costs of setting up a decent hotel: 

Challenges of Starting a Hotel Business

To sustain better, hoteliers must educate themselves on the probable challenges and the best ways to overcome them. That’s why we discuss 5 challenges (and solutions) here: 

1. Finding Skilled Employees

Hotel startup requires diligent staff to maintain service quality and run the business smoothly. A lack of hospitality skills in graduate candidates makes finding the best fit difficult. So you must start training the hired candidates according to your requirements and ideas to solve this. 

2. Aligning with Market Trends

Adapting to the changing advertising and marketing trends is a significant challenge initially, and if not done properly, it can lead to losses. To survive successfully, it is best to know all the trends relevant to your business size and type and apply them strategically.  

3. Streamlining operations

Hotels require endless tasks like managing reservations, guest databases, and financial record keeping in order to operate smoothly. Completing these tasks is pivotal for customer satisfaction and streamlining your operations, but managing them simultaneously is difficult. 

For this, you must leverage the right software to eliminate manual dependencies where you can and add operational efficiency. Expense management software, for instance, can automate your otherwise manual financial management process resulting in improved compliance, forecasting, and cash flow management.

4. High Investment

Hotel establishment requires high capital. It’s better to have your funding source sorted well in advance. Initially, it’s difficult to stabilize your cash inflow, leading to inadequate cash for making supplier payments. Shifting to an installment payment type can save you from bad debts. Consider launching competent marketing campaigns for brand awareness and lead management to fill your reception with customers. 

5. Fulfilling Legal Formalities

There are many legalities involved in starting a hotel venture. Consulting a lawyer to ensure compliance with applicable company and land lease laws is the right way to tackle all legal challenges. 

We’re now well-equipped with industry knowledge to move on to the steps of starting a hotel business.

Steps by Step Guide on How to start a hotel business

29% Of startups fail due to inappropriate capital usage. That’s a major reason to have a roadmap while starting your new hotel venture. Doing this will help you use your resources mindfully. Here’s a step-by-step process you must follow: 

Step 1: Developing a Business Plan

A solid business plan is the foundation for a new hotel business. This becomes a strong basis for achieving success, avoiding time wastage, and convincing investors to invest in your hotel.

 Here are 5 essential business plan parts: 

• Executive summary for quick overview.
• SWOT analysis, vision, and objectives that explains how it’ll bridge the local market gap. 
• Revenue targets and estimated profits.
• Marketing and revenue management strategies.
• Explain core operations in detail–technology type, staff, and service. 

Step 2: Conduct Market Research

Starting a new hotel will require you to conduct market research to better know the current market trends and target group. Clear ideas about your target group and their needs help you craft a unique customer experience and build a strong brand image while keeping marketing expenses in check.

3 Basis to decide your target market:

• Type of audience you know. 
• The audience that aligns with your offerings.
• Other hotels’ target audience in the area.

You can decide upon your target market based on your market analysis and then work on understanding them via research and customer surveys. The services you offer will then interest your target group.

Step 3: Review Financing Options

A financial plan is the lifeblood of running a profitable business. So, you must first enlist all the estimated initial costs–licensing, construction, and operations. Now you’re all set to explore your financing options–traditional or specialty credit. If you own long-term assets–real estate and have solid estimated cash flow, then traditional credit is a good fit. Whereas if you are acquiring loans with short-term assets–accounts receivable, specialty credit is a better option. 

Step 4: Finding and Securing a Location

Your boutique hotel will be successful if you place it at the right location. It defines your running cost, the number of guests, and potential profit. You can choose an existing property or build a new one according to your hotel dream and needs. You must ideally choose the location where your hotel is house-full at all times. Consider these points for a better choice:

• Operating costs budget—low for an existing hotel and high for a new property.
• Hotel’s accessibility–near airports and well connected with public transport.
• Location where nearby hotel’s (local competition) pricing is high to earn better profits.
• Where you can stand out from other hotels with your USP–free car parking.
• Noticeable location, preferably near tourist spots for customers to walk in directly.

Step 5: Building and Designing Your Hotel

If you choose to start your venture at an existing property, you just need to redesign it, which saves costs. But building and designing your hotel setup according to your target customers’ needs is costly but a risk worth taking to make your hotel profitable in the long run. Yes, your capital remains blocked for designing and construction costs for years, but it garners loyal customers and long-term profits as a reward. While designing and setting up your hotel, equip the rooms with all basic amenities according to your target market.

Key elements of an exemplary hotel design that you must inculcate: 

• Select a theme or concept for the hotel setup—a soothing vibe or fun elements as per your branding.
• Location or climate-inspired interiors. Mountainous places must have cozy blankets and rugs, whereas tropical areas can have vibrant tones. 
• Aesthetically pleasing reception and direct entrance.
• Spacious rooms with dedicated storage and recreational space.

Step 6: Install Systems

Hotel businesses have endless tasks–customer relationship management and revenue management, which add to its overall efficiency and success. But manual operations will leave you exhausted with incomplete tasks, leading to chaos and losses due to inefficiencies. Here’s when systems come in to streamline your processes and boost your operational efficiency.

Here’s a list of some major hotel management software you must consider: 

• Hotel management software: A set of hotel solutions, including accounting packages, CRM tools, and more
• Hotel Front Desk: Enables reception staff to manage front desk functions–reservations, check-ins, and rate lists.
• Property Management Systems: Hospitality property management software provides centralized access to organize and perform hotel day-to-day functions.
• Hotel Reservation: Helps manage bookings and prices for rooms.
• Hotel Channel Management System: Automates the process of finalizing rates, managing availability, and accepting bookings

Step 7: Hire and Train your Team

Hiring skilled team members who collaborate effectively can make you a market leader and a great hotel manager. Start with the hiring process and onboard executive and departmental positions before moving on to team building. This’ll help the management team understand the skills they need in different team members with detailed job descriptions. Remember, your employees must understand, value, and follow your company’s culture while contributing to its vision.

Once you’ve built your dream team, it’s time to train them according to their job requirements. For instance, the housekeeping team must be polite and highly organized.

Step 8: Build Hotel Marketing Plan

After shaping your business with the right strategy, it’s time to unveil it in front of the world and finally start a hotel business. Make sure to introduce your business well in advance to promote brand awareness and welcome guests from day one. Your marketing plan must reflect your specialty and be directed toward your target audience. Remember to keep your marketing plan politically, socially, and economically feasible and relevant. 

2 Insightful tips to make your launch successful: 

• Promote your grand opening across your socials and digital channels–website, emails, and Facebook/Instagram. 
• Include your hotel’s uniqueness and early bird discounts to attract customers.

Step 9: Launch and Manage Your Hotel

Finally, it’s the launch time for your new business! To make the best first impression, plan a launch event and invite stakeholders, influencers, the local community, and any business partners. Doing so will instantly spread the word and line up bookings. 

Once your hotel is ‘official’, focus on managing it well to tune your operations for enhanced guest experience and operational efficiency.

Wrapping up

Starting a hotel is quite a task for new industry entrants, but by following an extensive roadmap like ours, we promise it’ll be 10x easier. New hotels must organize their processes well, invest in relevant software from the beginning and start checking off their to-do list in minutes.