You’ve found the right place if you are looking to start your own hotel business. We’ll show you how it all works. Let’s start by examining the fundamentals of the hotel industry, such as how large the market is and what key segments it contains, and how revenue and profit are generated. Next, we will discuss the keys to starting and maintaining a successful hotel business.
It is important to finish your hotel’s business plans before you can start a hotel.
What is the Hotel Market Size?
According to IbisWorld there are 74.372 hotels and the industry generated $166.5 million in revenue last year in the United States. This is a 4.7% annual growth rate over the last five years.
Industry profits totaled $26.0 billion and wages paid to employees in hotels reached $42.7 billion.
What are the main segments of the hotel industry?
A hotel is a place that offers lodging, food, and other services to travelers or other guests. Motels, on the contrary, offer lodging for motorists with direct access to a parking lot.
You can classify a hotel or motel by several characteristics such as its location in a metro area, state or region where it is located, price or rate level, number of rooms and whether it is an independent or part-of a chain.
You can also segment hotels and motels by their room prices. If a hotel has a room rate in the top 30 percentile, it is considered to be upscale or luxurious. The mid-priced 30 percentile is considered to be middle-priced. The lowest 40 percentile can be categorized as economy or budget.
Overall, industry revenue from hotels is 87.4% and industry employment is 82.0%. However, they only account for 44.0%.
Industry revenue is 83.6% for hotels with 25 or more rooms. 12.5% of industry revenue comes from food and alcohol sales. 4.2% of industry revenue comes from conference and meeting rooms. 4.2% of industry revenue comes from other charges. Hotels with fewer rooms make up 3.8%.
Motels account for 12.6% of industry revenues. The revenue share of each segment has remained relatively steady over the past five year, though motels saw some growth during the recession at the expense higher-priced hotels.
How can hotels generate revenue and profit?
Hoteliers make a lot of money by selling their rooms.
As mentioned above, there are other important sources of revenue that you should consider, such as food and alcohol sales and the sale of conference and meeting rooms.
What are the external factors that affect the hotel market
The performance of the hotel industry is affected by many factors. These factors include:
- US residents travel domestically: The trends in domestic travel, particularly business travel, and the number of nights spent away form home directly impact accommodation demand. The demand for accommodation in hotels and motels increases as Americans travel more.
- Consumer confidence index: The changes in consumer confidence can influence the decisions people make about entertainment and travel spending, especially during recessions.
- Consumption: The level of consumer spending has a direct impact on travel demand. Consumers who spend more on general purchases are more likely to travel and stay in hotels.
- Non-US residents travel inbound: The trends in international visitor arrivals, and the length of their stay, influence accommodation demand. Inbound travel increases the demand for hotels or motels.
Which are the main competitors in the hotel industry?
There are 74,372 hotels located in the United States, as mentioned above.
Market leaders in terms of market share include Hilton Worldwide Holdings Inc. (13.7%) and Marriott
International Inc. (13.5%) & InterContinental Hotels Group PLC (7.5%).
Many smaller players make up the rest of this market.
Online Hotel Marketing Strategies
- Domestic leisure travelers: 48.5%
- Business travellers 24.0%
- International leisure travelers: 14.0%
- 13.5% for meetings, events, and incentive travellers
What are the most important financial metrics and costs for the hotel market?
These are the key financial metrics for the hotel market:
Profit
Industry profit is defined as earnings before interest or taxes. In recent years, industry profit has averaged 15.5% from sales.
Purchases
Major expenses in the industry are room supply and bedding, as well as cost of sales. Many hotels offer meals and liquor in their rooms, as well as separate dining or restaurant areas.
Purchases accounted for 29.9% of the average operator’s annual revenue last year.
Wages
Many aspects of hotel management require labor. These include front-of house activities like concierge, front desk and concierge, as well as all back-of the house activities such accounting, marketing, general management, room cleaning, servicing the kitchens, bars, and restaurants.
Most hotel jobs require little to no training or skill. Therefore, employees can be hired part-time and casually. Many hotels experience high staff turnover due to this practice.
There is always a need for training and recruitment, which can prove costly. To reduce their recruitment costs, some operators have outsourced a portion of their staff services and contracted with specialist staff-recruitment agents.
Industry wages accounted approximately 25% of total industry revenue last year.
Rent and Utilities
On average, 7.6% of hotel revenues is made up by rent and utilities
Other Expenses
For those in the industry that are franchisees, marketing costs and royalty fees can be a significant expense. The annual fee for franchisees is typically 4.0% to 6.0% from total revenue.
Other significant costs include repairs and maintenance as well as commissions paid to agents and bookings.
How do you launch a new hotel?
Find the Best Location
The most critical factor in determining success has always been location. A hotel can flourish in a location that is not crowded with other hotels. But, in a location with strong competition, success might not be possible.
Capital Plan
Millions of dollars are required to invest in a hotel. If you don’t have the money to invest in your hotel, you can get bank loans or angel investment.
Create a Business Plan
It is essential to have a simple, clear, and persuasive hotel plan. This will allow you to not only think about how you will handle the opportunity but also to convince lenders or investors that you are capable of doing so. A lack of planning will not attract savvy investors.
Offer Exceptional Services
This is a critical success factor for hotels. They ensure that their staff are knowledgeable, friendly and capable of solving any problems that may arise. Quality service includes remembering repeat customers’ names and providing information about local attractions and surroundings.
Create a Smart Ecommerce Strategy
Three key factors are required to ensure a successful e-commerce strategy.
- Visibility of your website
- Your website’s focus on sales
- Bookable offers that you promote on your site
Structure a Smart Pricing Strategy
Establish a pricing strategy that will increase hotel occupancy. Establish room rates based upon market research and costs. These pricing factors are:
- Costs of staffing
- Category: Room
- The length and time of your stay
- Maintenance costs
- Competitor pricing
Be Flexible
Your customers may have different expectations of a hotel. Therefore, your team must be empowered to make the right decisions in order to accommodate them.
Managers with the ability to make exceptions can help turn a situation around. This will allow them to build a reputation for providing quality customer service.
Differentiate
Two fundamental methods to distinguish yourself and get a competitive edge are: Be better and be different
- You can be significantly more proficient at something than everyone else by performing the underlying activities differently.
- You should create a product attribute that is unique and different from the rest.
Quality Management
Employee satisfaction and engagement are key components of quality management.
A hotel can improve employee satisfaction and customer service by focusing on customer service.
Invest In A Strategic Marketing Plan
A hotel’s marketing strategy should aim to achieve long-term success. You should have an integrated strategy to reach your target markets. To build brand recognition and drive revenue, you can use marketing, public relations and sales.
What are the average startup costs for a brand new hotel?
A typical start-up cost for a hotel is:
- Buy or build a hotel
- Working capital to cover marketing, staffing and other operational costs
Below are the percentages of sales for expenses. The cost of building or purchasing a hotel varies greatly depending on its type (e.g. luxury vs budget) and the size (e.g. 5 rooms vs. 500 rooms).
What is the average salary of hotel managers?
Based on the hotel’s success, executives and hotel operators can earn different pay amounts. Glassdoor reports that the average salary for a Starwood Hotels & Resorts Vice-President is $244,472, which 45% more than the national average.
Steps to Start a Hotel
These are the steps to get started with a hotel.
- Decide the type of hotel that you want to open (e.g. how many rooms, luxury or affordable).
- Find the best location for your hotel
- Decide whether to build your hotel from scratch, or renovate an existing one.
- Talk to architects and other professionals involved in the construction or renovation of your hotel to find out how much it will cost.
- Talk to your local government for information about zoning issues, permit issues, and the associated costs
- Your hotel business plan should include your strategy, financial projections and plans.
- To raise the necessary funding, present your plan to lenders and investors
- Build/renovate your hotel
- Train and recruit hotel staff
- Buy the necessary systems (e.g. reservation system, accounting software etc. To effectively manage your hotel, you will need to purchase the required systems (e.g., reservation system, accounting software etc.).
- Your pre-opening hotel marketing strategy should be launched
- Your hotel should be open to the public
