How to Start a Hotel Business

First of all, you have to make research how big the market is, what the key segments are, and how revenues and profits are generated. Also, we’ll find keys to not only starting a hotel business, but succeeding in it!

First and the most important step in starting a hotel is to complete your hotel’s business plan. You should download the world’s most widely used hotel business plan template here.

Market research

Due to IbisWorld, there are 74,372 hotels, and the hotel industry generated $166.5 billion in revenue in the United States alone last year. This represents an annual growth rate of 4.7% over the past 5 years.

Industry profits were $26.0 billion, and wages paid to hotel employees totaled $42.7 billion.

Key segments of the hotel market

Difference between Hotel and Motel.

Hotel is an establishment that provides lodging and, often times, meals and other services for travelers and other paying guests. Motel, provides lodging for motorists in rooms usually having direct access to an open parking area.

Hotel or motel can be classified by a number of characteristics as:

  • Range of services, full or limited
  • Location​, metropolitan area, the state or region in which it is located
  • It's price or rate level
  • Numbers of rooms
  • Whether it is independent or part of a chain operation

Overall, sales from hotels account for 87.4% of industry revenue and 82.0% of industry employment, though they account for only 44.0% of industry establishments.

Hotels that consist of 25 or more rooms provide 83.6% of industry revenue (with 62.7% of industry revenue coming from guest room rentals, 12.5% coming from food and alcohol sales, 4.2% coming from conference and meeting rooms and 4.2% coming from other charges), while hotels that offer fewer than 25 rooms only constitute 3.8% of industry revenue.

Motels provide about 12.6% of industry revenue. The relative proportion of revenue from each of these segments has been relatively stable over the past five years, although motels experienced some growth at the expense of higher-priced hotels during the recession.

How to generate revenues and profits?

Basically, hotels generate revenues and profits from selling out their rooms.

Also, other key sources of revenue to consider are additional services that hotel provides as restaurant or bar on site, selling conference and meeting rooms.

External factors which affect the hotel market

Domestic trips by US residents: Trends in domestic travel, especially business travel, and the total nights spent away from home directly affect demand for accommodation. As the number of trips made by US citizens rises, demand for hotels and motels to house them increases.

Consumer Confidence index: Changes in consumer confidence influence decisions that individuals make concerning expenditure on entertainment and traveling, particularly during a recession.

Consumer spending: Consumer spending levels have a direct effect on travel demand. When consumers are spending more overall, they are more likely to spend some of their money on travel and accommodations.

Inbound trips by non-US residents: Trends in international visitor arrivals and their lengths of stay influence demand for accommodation. A rise in inbound trips positively affects demand for hotels and motels.

Leaders in the hotel market

As specified above, there are 74,372 hotels in the United States.

The market leaders (in terms of market share) include Hilton Worldwide Holdings Inc. (13.7%), Marriott

International Inc. (13.5%) and InterContinental Hotels Group PLC (7.5%).

The rest of the market is comprised of many smaller players.

Feb 27, 2018