Carolyn Young is a business writer who focuses on entrepreneurial concepts and the business formation. She has over 25 years of experience in business roles, and has authored several entrepreneurship textbooks.
David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.
Published on June 7, 2022 Updated on November 24, 2023
$661,550 - $2,124,100
$1.1 million - $1.6 million p.a.
Time to build
6 – 12 months
$274,000 - $410,000 p.a.
As the pandemic recedes, people are hitting the road and traveling again. The US hotel industry suffered a huge hit in 2020, but it’s now bouncing back in a big way — doubling from its pandemic low and expected to expand a stunning 33% more in 2022.
Starting a hotel is a huge undertaking. But if you’re willing to take the plunge, you’d be able to ride that growth wave and provide an invaluable service that might one day become a major international brand like Hilton or Hyatt!
Before you break ground, however, you’ll need to understand how to launch a business. Fortunately, this step-by-step guide is your one-stop shop for information about how to start a successful hotel.
Looking to register your business? A limited liability company (LLC) is the best legal structure for new businesses because it is fast and simple.
Average level of education –The average hotel manager has a bachelor’s degree.
Average age – The average hotel manager in the US is 43.3 years old.
How much does it cost to start a hotel business?
Startup costs for a hotel range from $650,000 to $2 million or more. Costs include at least a 30% down payment on the land and building construction, room furnishings, towels and sheets, equipment, and a labor and operating budget. Costs will be dependent on the amenities you put in your hotel, such as a pool, gym, spa, and restaurant.
If you were to buy a franchise such as a Holiday Inn or Hampton Inn instead of building your own, you’ll spend significantly more on franchise fees and construction.
If you do not have a background in the hospitality business, you can get an online degree from a school like Bryant and Stratton.
You’ll need a handful of items to successfully launch your hotel business, including:
Hotel room security features
Housekeeping carts and supplies
Towels, sheets, toiletries
Setting up a business name and corporation
$150 - $200
Business licenses and permits
$100 - $300
Business cards and brochures
$200 - $300
$1,000 - $3,000
30% down payment on land and building construction
$300,000 - $1,500,000
Furnishings and supplies
$200,000 - $400,000
Computer system and other supplies
$10,000 - $20,000
Labor and operating budget
$150,000 - $200,000
$661,550 - $2,124,100
How much can you earn from a hotel business?
The prices you charge will depend on the amenities you’ve built, and the quality of your rooms and furnishings. A luxury hotel or a boutique hotel in a great location can be $300 or more per night, while many chain hotels might charge $100 to $150 per night. These calculations will assume an average price of $150 and that your hotel will have 50 rooms. Successful hotel profit margins are about 25%.
In your first year or two, you could have 40% occupancy on average, bringing in $1,095,000 in annual revenue. This would mean $274,000 in profit, assuming that 25% margin. As your brand gains recognition, you might increase your average occupancy rate to 60%. With annual revenue of $1,642,000, you’d make a great profit of $410,000.
What barriers to entry are there?
There are a few barriers to entry for a hotel. Your biggest challenges will be:
The high startup costs of constructing and preparing a hotel
The intense competition in the hotel market
Related Business Ideas
If you’re still not sure whether this business idea is the right choice for you, here are some related business opportunities to help you on your path to entrepreneurial success.
Now that you know what’s involved in starting a hotel, it’s a good idea to hone your concept in preparation to enter a competitive market.
Market research will give you the upper hand, even if you’re already positive that you have a perfect product or service. Conducting market research is important, because it can help you understand your customers better, who your competitors are, and your business landscape.
Why? Identify an opportunity
Research hotels in your area and online to examine their services, price points, and customer reviews. You’re looking for a market gap to fill. For instance, maybe the local market is missing a boutique hotel with a spa, or a small hotel with a restaurant and room service.
You might consider targeting a niche market by specializing in a certain aspect of your industry, such as operating as a discount hotel or a luxury hotel.
This could jumpstart your word-of-mouth marketing and attract clients right away.
What? Determine your products or services
You can offer any number of amenities in your hotel, many of which are included in the room price. You can earn additional revenue by having a restaurant or spa. You can also make money from vending machines and business services, such as printing and copying.
How much should you charge for hotel rooms?
The prices you charge will depend on the amenities you’ve built, and the quality of your rooms and furnishings. A luxury hotel or a boutique hotel in a great location can be $300 or more per night, while many chain hotels might charge $100 to $150 per night. Check your local market prices to make sure you’re competitive. Your profit margin after the costs of labor and overhead should be about 25%.
Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.
Who? Identify your target market
Your target market will be travelers, whether for business or pleasure. You should spread out your marketing to include sites like TikTok, Instagram, Facebook, and LinkedIn.
Where? Choose your hotel location
Choosing the right location for your hotel is essential for attracting guests and ensuring its success. Look for a spot in a popular and convenient area, such as a bustling city center, a beachfront, or a tourist destination. Consider accessibility and convenience, ensuring that the location is easily reachable by public transportation and has ample parking.
Additionally, assess the competition in the area and aim to differentiate your hotel by offering unique amenities or services, such as a rooftop bar or a spa. Depending on the type of hotel you plan to start, you may also want to consider the proximity to local attractions, business centers, or other resources.
By strategically choosing the right location, you can establish a profitable and successful hotel that provides exceptional service and stands out in the competitive hospitality industry.
Step 3: Brainstorm a Hotel Name
Your business name is your business identity, so choose one that encapsulates your objectives, services, and mission in just a few words. You probably want a name that’s short and easy to remember, since much of your business, and your initial business in particular, will come from word-of-mouth referrals.
Here are some ideas for brainstorming your business name:
Short, unique, and catchy names tend to stand out
Names that are easy to say and spell tend to do better
Name should be relevant to your product or service offerings
Ask around — family, friends, colleagues, social media — for suggestions
Including keywords, such as “hotel” or “inn”, boosts SEO
Name should allow for expansion, for ex: “Grand Getaways Hotel” over “Family Fun Resorts”
Avoid location-based names that might hinder future expansion
Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these.
Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that sets your business apart. Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.
Step 4: Create a Hotel Business Plan
Every business needs a plan. This will function as a guidebook to take your startup through the launch process and maintain focus on your key goals. A business plan also enables potential partners and investors to better understand your company and its vision:
Executive Summary: A brief overview of the hotel business plan, summarizing key points and goals.
Business Overview: Detailed information about the hotel, including its mission, vision, and the type of services it will offer.
Product and Services: Specific details about the hotel’s accommodations, amenities, and any additional services provided, such as dining or event spaces.
Market Analysis: Examination of the target market, including demographics, trends, and potential demand for the hotel’s offerings.
Competitive Analysis: Evaluation of competitors in the hotel industry, identifying strengths, weaknesses, opportunities, and threats.
Sales and Marketing: Strategies for promoting the hotel, attracting guests, and increasing bookings through advertising, promotions, and other sales tactics.
Management Team: Introduction to key individuals involved in the hotel’s management, highlighting their qualifications and roles.
Operations Plan: Details on the day-to-day operations of the hotel, including staffing, facilities management, and customer service protocols.
Financial Plan: Projections and analyses of the hotel’s financial performance, including income statements, balance sheets, and cash flow forecasts.
Appendix: Additional supporting documents or information, such as market research data, legal documents, and any other relevant materials.
If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.
Step 5: Register Your Business
Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.
Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business!
Choose where to register your company
Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you’re planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to hotels.
If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state.
Choose your business structure
Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your hotel will shape your taxes, personal liability, and business registration requirements, so choose wisely.
Here are the main options:
Sole Proprietorship – The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. The owner pays taxes on business income on his or her personal tax return.
General Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses. The partners pay taxes on their share of business income on their personal tax returns.
Limited Liability Company (LLC)– Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts.
C Corp – Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly. The corporation pays taxes, and owners pay taxes on their dividends, which is sometimes referred to as double taxation.
S Corp – An S-Corporation refers to the tax classification of the business but is not a business entity. An S-Corp can be either a corporation or an LLC, which just need to elect to be an S-Corp for tax status. In an S-Corp, income is passed through directly to shareholders, who pay taxes on their share of business income on their personal tax returns.
We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using an online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have.
The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN.
Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.
It is important to consult an accountant or other professional to help you with your taxes to ensure you’re completing them correctly.
Step 7: Fund your Business
Securing financing is your next step and there are plenty of ways to raise capital:
Bank loans: This is the most common method but getting approved requires a rock-solid business plan and strong credit history.
SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
Venture capital: Venture capital investors take an ownership stake in exchange for funds, so keep in mind that you’d be sacrificing some control over your business. This is generally only available for businesses with high growth potential.
Angel investors: Reach out to your entire network in search of people interested in investing in early-stage startups in exchange for a stake. Established angel investors are always looking for good opportunities.
Friends and Family: Reach out to friends and family to provide a business loan or investment in your concept. It’s a good idea to have legal advice when doing so because SEC regulations apply.
Personal: Self-fund your business via your savings or the sale of property or other assets.
Bank and SBA loans are probably the best option, other than friends and family, for funding a hotel business. You might also try crowdfunding if you have an innovative concept.
At some point, if you’re successful and want to open new locations, you may be able to attract angel investors or venture capital.
You’ll likely need a Certificate of Occupancy Permit, which is issued by the building department official who has jurisdiction over your facility. The Certificate of Occupancy Permit will indicate which rooms are approved as dwelling units.
Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits.
You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more.
Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your hotel business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.
Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account.
Step 10: Get Business Insurance
Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.
Here are some types of insurance to consider:
General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
Business Property: Provides coverage for your equipment and supplies.
Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
Worker’s compensation: Provides compensation to employees injured on the job.
Property: Covers your physical space, whether it is a cart, storefront, or office.
Commercial auto: Protection for your company-owned vehicle.
Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of the above insurance types.
As opening day nears, prepare for launch by reviewing and improving some key elements of your business.
Essential software and tools
Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks.
You may want to use industry-specific software, such as inRoad, TripActions, or Cloudbeds, to manage your bookings, room inventory, pricing, and payments.
If you’re unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial.
Develop your website
Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism.
You can create your own website using website builders. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.
They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google.
For your hotel, the marketing strategy should focus on showcasing the unique experiences, comfort, and amenities you offer to guests. Highlight the quality of your accommodations, your exceptional service, and any special features like dining options, spa services, or unique local experiences.
Professional Branding: Your branding should reflect the ambiance and experience that guests can expect at your hotel. This includes everything from your logo and website to the interior design and staff uniforms.
Direct Outreach: Network with local businesses, travel agencies, and event planners. Building partnerships can help in attracting corporate clients, event bookings, and referrals.
Digital Presence and Online Marketing
Professional Website and SEO: Develop a visually appealing website that showcases your rooms, amenities, and services. Use SEO best practices to rank for local searches related to hotels, accommodations, and lodging in your area.
Social Media Engagement: Utilize platforms like Instagram for visually showcasing your hotel, and Facebook and Twitter for sharing promotions, guest reviews, and hotel news.
Content Marketing and Engagement
Travel and Lifestyle Blog: Share blog posts about local attractions, events, and activities, as well as travel tips and hotel news. This positions your hotel as a go-to source for guests traveling to your area.
Email Newsletters: Regular newsletters can update guests and potential visitors about special offers, upcoming events, and new services at the hotel.
Video Tours and Testimonials: Create video content that gives virtual tours of your hotel and shares guest testimonials.
Experiential and In-Person Engagements
Local Events and Tours: Organize local tours or events that can enhance the guest experience and showcase the uniqueness of your location.
Participation in Travel Expos: Engage in travel expos and trade shows to promote your hotel to a wider audience.
Collaborations and Community
Partnerships with Local Businesses: Collaborate with local attractions, restaurants, and service providers to offer guests special packages or discounts.
Community Involvement: Participate in or sponsor community events to increase local visibility and contribute to the community.
Customer Relationship and Loyalty Programs
Loyalty Rewards Program: Implement a program that offers repeat guests special discounts, room upgrades, or other perks.
Guest Feedback and Personalization: Encourage guest feedback to improve services and personalize guest experiences based on their preferences.
Promotions and Advertising
Targeted Online Advertising: Use platforms like Google Ads and Facebook to target potential guests, especially those searching for accommodations in your area.
Special Packages and Seasonal Promotions: Offer special packages for holidays, local events, or off-peak seasons to attract guests.
Focus on USPs
Unique selling propositions, or USPs, are the characteristics of a product or service that sets it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your hotel meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire.
Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your hotel business could be:
Enjoy the lap of luxury on your holiday
Stay with us for less on your road trip
Relax and renew with a day at the spa!
You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a hotel, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in hotels for years and can offer invaluable insight and industry connections.
The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in hotels. You’ll probably generate new customers or find companies with which you could establish a partnership.
Step 12: Build Your Team
If you’re starting out small from a home office, you may not need any employees. But as your business grows, you will likely need workers to fill various roles. Potential positions for a hotel business include:
Housekeepers – clean rooms and common areas
Hotel Clerks – greet guests, assign rooms
Maintenance Workers – make repairs
Valets – carry luggage
General Manager – scheduling, accounting
Marketing Lead – SEO strategies, social media
At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need.
Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent.
Hotels are bouncing back big-time as people get back out and travel. Starting a new hotel requires a major investment, but it provides a crucial service and can be very lucrative. If you have a passion for hospitality and serving your guests, you could build a major hotel chain that goes national, even global!
Now that you know what’s involved, it’s time to break ground on your successful hotel.
Hotel Business FAQs
How profitable are hotels?
Hotels can be very profitable. You’ll need a good concept, an excellent location, and offer great customer service to be successful.
How should I price my hotel rooms?
The prices you charge will depend on the amenities you’ve built, and the quality of your rooms and furnishings. A luxury hotel or a boutique hotel in a great location can be $300 or more per night, while many chain hotels might charge $100 to $150 per night. Check local market prices to make sure you’re competitive.
Is it hard to start a hotel?
Starting a hotel can be a challenging and complex process that requires significant planning, financial investment, and knowledge of the hospitality industry.
What is the most profitable part of a hotel?
Revenue from room bookings and occupancy rates often play a significant role in a hotel’s profitability. However, other revenue streams such as food and beverage services, conference or event spaces, spa facilities, or additional amenities like fitness centers or swimming pools can also contribute significantly to overall profitability.
How many rooms should my hotel have to be successful?
Consider factors such as the competitiveness of the local market, existing accommodation options, and potential demand generators like nearby attractions, events, or business centers. By understanding the market dynamics and aligning the room count with the target market’s needs, you can increase the chances of success.
How can I effectively market my hotel to attract guests and increase bookings?
Building a compelling online presence is essential. Invest in a professional website that showcases your hotel’s features, amenities, and unique selling points. Utilize online travel agencies and hotel booking platforms to reach a wider audience. Engage in search engine optimization to improve your website’s visibility.
How can I differentiate my hotel from competitors in the area?
Highlight your hotel’s distinctive features, such as special amenities, architectural elements, or design aspects. Emphasize personalized service by training your staff to provide exceptional customer service and tailored experiences. Offer unique amenities or experiences that set your hotel apart.
How to Start a Hotel
Decide if the Business Is Right for You
Hone Your Idea
Brainstorm a Hotel Name
Create a Hotel Business Plan
Register Your Business
Register for Taxes
Fund your Business
Apply for Hotel Business Licenses and Permits
Open a Business Bank Account
Get Business Insurance
Prepare to Launch
Build Your Team
Run a Hotel - Start Making Money!
Hotel Business FAQs
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