Wondering how to start a hotel business? You’re not alone. One of the first-ever hotels (as we’ve come to know them) was started in Exeter, England in 1768, and today, the industry has skyrocketed to be part of one of the largest in the world. In this guide, we’ll teach you how to start a hotel business with step-by-step instructions and expert advice. Keep reading to discover the fundamentals all hotel businesses need to succeed.
Discover how to start a hotel business in 8 steps:
Step 1: Find a market need.
You’ll need a thorough understanding of the hospitality industry worldwide, as well as in your location, in order to be successful. To get started, find your favorite hotel news sources, then set aside time each day or week to stay informed. Once you have some familiarity with the industry, it’s time to dive into the market research for your hotel.
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Cvent's resources library is a great place to start. It's where you can read the latest news, thought leadership, and best practices from a wide variety of industry experts. The goal of your industry research is to get a clear idea of whether you can be competitive in your market, and what characteristics your hotel will need in order to succeed.
Rather than starting with an idea of your hotel and making the research fit your idea, try to find an area of need in your market. What audiences are underserved? Where is demand outpacing supply? What does your location need in terms of hospitality and accommodation?
Your market research should include the following important topics in order to give you a good understanding of where you’ll fit in with your hotel:
- Property type. All hotels are not built the same. The industry is made up of resorts, spas, airport hotels, all-inclusives, hostels, boutiques, and many other property types. You’ll need to determine what property type you plan to offer, and what other options in that category exist in your location.
- Hotel size. Closely related to your property type is the hotel size. How many guest rooms will you offer, and how does that compare to your competitors?
- Star rating. What level of service and amenities do you plan to offer?
- Location. What region will you operate in? Is demand increasing in the area? What location amenities, like airports, beaches, or event venues, will you be in close proximity to?
- Brand affiliation. Will you be a part of a larger brand’s umbrella? Being affiliated with a brand can help with marketing, business intelligence, pricing, and audience targeting.
- Extra amenities. What services or amenities are important for hotels of your type and star rating in your location? Things like free Wi-Fi, business meeting space, a pool, or wedding services could all be important depending on your target audience.
- Guest demographics. How would you define the types of guests who may frequent your location? What is the purpose of travel, and what are some common characteristics of these travellers? Knowing whether you are targeting business travellers, families, couples, solo travellers, retirees, or other demographic groups will help you to craft your marketing plan and hotel concept.
All of this research should give you a good idea of your main competitors and target audience. Those two pieces of information will determine everything else about your property, from budget and financing to marketing and daily operations. Spend the time on this step to make sure you’ve found a true need in the market, and you’ll be better prepared for success.
You can utilise tools like Cvent's Hotel Business Intelligence™ Software Solutions to provide you with the transformative business insights needed to conduct your market research and benchmark against the competition.
Step 2: Craft your strategic goals.
Now that you have a general understanding of the needs in the market, you’ll need to create a smart solution to fill that gap. Your unique combination of amenities, concept, decor, marketing, location, and services can help you stand out from the crowd and capture market share if you approach it strategically.
Consider how you’ll approach pricing, revenue management, sustainability, customer satisfaction, events, and other market needs when crafting your goals. As with all goals, they should be S.M.A.R.T - specific, measurable, attainable, relevant, and time-based. According to the Naples Hotel Group, an expert hotel development firm, some of the best goals a hotel owner can focus on include:
- Measuring and increasing customer satisfaction.
- Creating a solid revenue management system.
- Building a strong online reputation.
- Attending at least one hotel industry conference.
- Considering working with a consulting firm to bypass the common roadblocks new hotel owners face.
Make sure that the needs of the market and your target audience, along with your business needs, help to determine your goals. This will ensure that everything you do helps your customers, as well as your bottom line.
You can use a hotel business plan template to outline the results of your research and planning, including your competitive advantage, goals, and your plan to get those results.
Step 3: Run the numbers.
With your goals and plan in place, it’s time to run the numbers and make sure your business will be profitable. Using your market research, you can estimate key factors like room pricing, vacancy rates, RevPAR (revenue per available room), and operating costs. A basic overview of hotel finances will help you hire the right revenue manager and sales team later on. The two key areas to focus on are profitability and any external factors that may affect your hotel business. You’ll also need to estimate initial costs for your hotel business, including startup and hiring costs, licensing, permits, construction, renovations, and your first year of operations.
You can set up a few different scenarios in your forecasting at this point to see how key decisions affect the potential profitability of your business. For instance, do you want to buy or build? Buying into a franchise or taking over an existing hotel building has lower startup costs, unless you have to renovate extensively. But it also requires you to establish your new hotel identity, which can be a challenge depending on the current state of the business. On the other hand, building a hotel, while usually considerably more expensive upfront, can provide a solution to a lack of available buildings and can be more lucrative in the long run.
Step 4: Review financing options.
Once you decide on the right financial plan for your business, you’re ready to fund it. There are a number of available options for financing your hotel business. Jim Pendergast, Senior Vice President and General Manager of altLINE, discussed this topic in detail in a recent interview with Cvent.
“It's important to understand the full scope of financing options available for your hotel's funding," he said. "Generally, you have two commercial financing categories when opening your hotel: traditional credit or specialty credit.
With traditional credit lines, you receive financing based on long-term assets. These are things like real estate owned by your hotel as well as cash flow projections and calculations submitted during underwriting. Lenders review these assets before awarding your loan.
With specialty credit, you'll receive financing or credit lines based on near-term assets. This might be hotel equipment or invoices from accounts receivable. The idea is these backings are more liquid than what's needed in traditional lending.
Both traditional and specialty financing are appropriate vehicles for hotels depending on your capital needs. However, the larger and more established your hotel franchise, the more specialty lending could make ongoing sense. This is because large hotels manage significant account receivables operations.
Consider the amount of credit card transactions that must be administered, not to mention hospitality-related vendor operations happening within the establishment. The larger your AR activities, the more something like AR-based asset lending and similar specialty lending might benefit you.”
Step 5: Do your paperwork.
There are a number of important legal, regulatory, and insurance requirements to fulfill in order to establish a new business of any kind, and your hotel business is no different.
Consult with your legal, insurance, accounting, and operations teams to determine the requirements for your location. At a minimum, you’ll need to set up a business structure and get business insurance. You will also likely need building or renovation permits, hotel licensing, and licensing for serving food and alcoholic beverages. There will also be a number of health and safety requirements as you complete your building or renovation process.
All of this paperwork is not the motivating factor for getting into the hospitality industry, but it is important. Work with your team to check requirements at the local, state, and federal level and keep on top of the process throughout your launch, so that you don’t have to repair costly mistakes down the road.
Step 6: Hire and train your team.
A business is only as good as the team members that contribute to its success. By hiring great employees at all levels, you’ll set yourself up to deliver value to your guests and become a market leader.
Many hotels opt to hire for key executive and departmental positions first, setting the tone and direction for the rest of your hiring decisions. These leaders can then identify what they would like to see in their own teams, and how many staff members they will need. Each team should identify the roles and skills they’re looking for, as well as developing a plan to reach and source great new hires.
Make sure that your application and interview processes are easy for candidates so that you don’t introduce needless friction. Find ways to communicate your core mission, values, and approach to this new business throughout the hiring process so that you attract candidates who share your vision.
Once you’ve hired a great team, take the time to onboard and train them to give them the best chance of success. Any employees who will interact with guests should receive extra training on customer service and guest relations so that they’re ready to lend a helping hand, regardless of whether it’s in their job descriptions.
If you focus from the beginning on becoming the employer of choice in your market, you’ll attract a stellar team that’s ready to help you become a market leader.
Step 7: Draft a marketing plan.
You’re now ready to share your hotel concept with the world. Well in advance of opening, you’ll need to spread the word about your property and set yourself up for a profitable business launch.
Your hotel marketing plan is an important part of your overall business strategy, guiding your decision making on decor, daily operations, communications, customer service, and more.
Think back to the target audience that you identified in your market research. Using that initial audience, you can now conduct more in-depth customer research to determine who your customers are, where you’ll find them, how you’ll communicate with them, and how they define value.
Hotel marketing expert and Co-Founder of Saffron Key, Ben Weagraff, advises that there is no one-size-fits-all plan for new hotel businesses.
“There’s a number of strategies that can work very well,” he told SiteMinder. “But they depend on the hotel itself; its digital properties (including website, email relationships, the strength of social media channels) and what exactly the hotel is trying to do.”
He goes on to note: “However, generally these techniques present a good repeatable path towards driving high-value customers. The greatest thing about content marketing is that it is low-cost, measurable, repeatable, and it builds upon itself. Once the foundation is in place, customers roll in at increasing rates.”
If you’re looking for some ideas to inspire your marketing plan, check out some of these great tips on Marriott’s marketing strategy, and be sure to check out all of Cvent's hotel marketing solutions to help guide you throughout the process.
Step 8: Launch your hotel business!
At this point, you’ve put in the work to open a profitable and high-quality hotel business for your market. You’ve got the plan and the team to make your vision a reality. Now it’s time to launch.
The goal of your launch is of course to introduce your hotel to guests, but it’s also a great opportunity to introduce yourself to the local community, key stakeholders, influencers, and potential partners. Put your best foot forward with all of these audiences by planning a grand opening event that reflects your mission and values.
You can use event planning and diagramming tools to create your layouts, collaborate with vendors, and assign related tasks to team members. As long as you focus on building relationships with your community, investors, and potential clients, your grand opening will be a success.
With these proven strategies, you’ll be well on your way to starting a hotel business.
Now that you know how to start a hotel business, it's time to start thinking about how you'll earn your revenue. Read on for hotel revenue tips every hotelier should know.
