Of course, the answer would be money. To open a hotel, you’ll need money. However, you can have all the money in the world and still fail to open a high-quality hotel. Assume you have the capital but don’t have enough or no experience in the hotel industry.
Even if you have, starting a hotel is not the same as working for someone who owns a hotel. Starting a hotel from the very bottom is a demanding task. You can build a hotel or can buy one and run it, as it’s generally easier. Not only is it difficult to open a new hotel, but the time it takes to pay off is also longer. However, with an acquisition, you can expect cash flow from day one.
Now, if you want to open a new hotel for any reason, this article is for you.
Let’s see what it takes to start a hotel?
#1. Location, Location, Location
Do you know what the golden rule of real estate is? “Location, location, location.” The statement applies to the hotel industry too. Location is the most vital aspect when starting a hotel. Before you start looking for the right street, market, zone, or anything else, be sure you’re in the right town.
Figure out what kind of hotel you want. Make a reservation at a hotel in the city where you want to open your hotel. This is one great approach to see if you have the correct concept for the right area.
For example, go to the websites of Hampton by Hilton, Holiday Inn Express, and Marriott International and make reservations. This will show if the hotel you’re thinking about has been tried in that city already. You may think that you could be a trendsetter, but everyone believes that. Let’s be cautious and presume that if your idea is good, it has already been tried. As a result, you’ll end up with fewer egoistic dead ends.
#2. The effects of downscaling
When opening a hotel, it is better to avoid building a low-cost, low-end hotel, such as a Super 8 Hotel. Why? The fundamental goal of a firm is to get higher returns on investments. This is referred to as raising economic value or shareholder value. It’s incredibly tough to increase shareholder value from an economic asset.
Your competitors will have already paid for their infrastructure. Moreover, they can manage to lower their pricing in reaction to your cheap prices. This way, they can undercut your attractiveness to budget travelers, compelling you to go even lower. Building a firm on cost advantages is extremely challenging. It is not impossible, but it is tough. And you don’t want to start a business that will be difficult to run.
#3. How upscaling might affect
If you have previous experience in restaurant management, you can upscale your hotel with food and beverages. It is possible to keep your costs low. However, there are some important items whose prices cannot be negotiated. In other words, even if you are working efficiently, your costs will be high. As a result, you will be under pressure to have a steady stream of guests flowing into your hotel. Only then you’ll be able to cover your operating expenses.
Since not all of your customers will eat at your hotel, you must be able to maintain a high level of bookings. This way you’ll generate money from your conference facilities.
Alternatively, you must make your restaurant popular enough to generate cash. Here’s the thing: restaurants are incredibly difficult to run as lucrative businesses. Even when they have a large number of customers, their expenditures are typically so high that they eat into the rest of a hotel’s profits. This is why Drury Hotels closed its restaurant units. The expenditures were so high. As a result, their first hotel’s restaurant ate all the revenues coming from the room bookings.
#4. Choose the right models to look up to
When starting a hotel, one should choose their models wisely. For example, hotels like Hampton by Hilton, Holiday Inn Express, Marriott International’s Courtyard, and Fairfield are great choices. These models will serve as the foundation around which your hotel concept will be built.
Make sure that hotels are offering rooms in your selected city for at least $110 per night as a “Best Available Rate.” The Courtyard will be a little taller than this, but the Fairfield will be a little lower. If you can’t obtain a room for $110 per night at those hotels, get out of there!
It’s not about passion in business; it’s about facts and money. You must make fact-based decisions. You may still wish to stay in that city. However, you should understand that it may lower your returns in that case.
#5. Have clear motivations
The reason why you shouldn’t run a hotel if you can’t get $110 per night is the high standards. Such hotels are franchises with really high and severe requirements. An individual with greater expectations, such as Beyonce, might tolerate a night in one of those hotels. If a person on welfare wanted to, they could spend a night or two there if they planned and saved for it. Such hotels are known as Class A mid-market facilities. This indicates that the average person would consider this to be a decent hotel. In addition, everyone’s definition of a decent hotel should be able to charge $110 per night. If you want to do anything different from what these hotels do, you must have good reasons for doing so. You must have clear reasons that justify the higher investment or risk.
The bottom line
The criteria are the same in every city. No matter if it’s Marlborough, Massachusetts where a Hampton by Hilton hotel costs $144 per night, or Branson, Missouri where the same costs $89 per night. This indicates that, despite having the same amenities and decor, the Branson, Missouri hotel has lesser returns than the Marlborough, Massachusetts hotel. Construction expenses, as well as overhead expenditures, will be comparable. In terms of costs and planning, food and beverages will be identical. Despite this, one hotel earns much more money than the other. Thus, if there’s one core thing in the hotel business that matters, it’s location, location, location.