Hotel: Our Business Plan

This article was written by our expert who is surveying the industry and constantly updating the business plan for a hotel.

Who wrote this content?

The Dojo Business Team

A team of financial experts, consultants, and writers

We're a team of finance experts, consultants, market analysts, and specialized writers dedicated to helping new entrepreneurs launch their businesses. We help you avoid costly mistakes by providing detailed business plans, accurate market studies, and reliable financial forecasts to maximize your chances of success from day one—especially in the hotel market.

Who exactly should your hotel target as customers?

Your hotel should target transient guests including business travelers, leisure visitors, and adventure seekers, with a strong focus on "bleisure" travelers who combine business and leisure trips.

The primary demographic consists of guests aged 25-54, segmented into specific categories like value-conscious couples, conference attendees, and multi-generational families depending on seasonal patterns. Generation Z travelers show particular interest in convenience-driven experiences and themed accommodations.

Modern hotel guests exhibit distinct booking behaviors that favor mobile-first platforms, contactless check-in processes, and loyalty program participation. They typically prefer short city-center stays for business purposes and longer resort-based vacations for leisure, with increasing demand for wellness and experience packages.

Digital nomads and sustainability-conscious travelers represent growing segments that hotels should consider, as they often stay longer and value eco-friendly practices and workspace amenities.

You'll find detailed market insights in our hotel business plan, updated every quarter.

Where should you locate your hotel for maximum occupancy?

Your hotel location should prioritize proximity to business districts, major tourist attractions, and transport hubs to ensure sustainable occupancy rates throughout the year.

The most successful hotel locations offer walkable access to key demand drivers including renowned dining establishments, spa and wellness amenities, and flexible event or conference facilities. Hotels positioned near city centers with easy access to airports consistently outperform those in peripheral locations.

Data shows that hotels near Singapore's central business district and major attractions achieve 85% occupancy rates, compared to only 60% for properties located on city outskirts. This pattern repeats across major metropolitan areas worldwide.

Your location analysis should evaluate the surrounding area's economic stability, planned infrastructure developments, and seasonal tourism patterns. Consider proximity to convention centers, medical facilities, universities, and entertainment districts as additional occupancy drivers.

What does your competition look like in your chosen area?

Your competitive analysis should focus on 4-10 properties in the same geographic area and category, sharing similar room rates, guest segments, and service levels.

These competitors typically share market benchmarking data through STR reports, revealing crucial metrics including Average Daily Rate (ADR), occupancy rates, and Revenue per Available Room (RevPAR). Understanding their pricing strategies and service gaps will help you position your hotel effectively.

How should you position your hotel to stand out?

Your hotel positioning should emphasize a strong brand identity centered on sustainability, digital experience integration, and personalized guest service delivery.

Choose between upscale full-service positioning or curated boutique-experience positioning, with particular focus on wellness amenities, technology integration, and authentic local cultural experiences. Modern travelers increasingly value green certifications and mobile-first service capabilities.

Your differentiation strategy should highlight unique themed spaces, comprehensive family programs, and distinctive culinary offerings that reflect local culture. Consider incorporating co-working spaces, fitness and wellness centers, and flexible event facilities to appeal to diverse guest segments.

Technology integration becomes crucial for differentiation, including mobile check-in, smart room controls, contactless service options, and personalized recommendation systems. These features particularly appeal to younger demographics and business travelers.

This is one of the strategies explained in our hotel business plan.

What financial performance should you expect over five years?

Your hotel should achieve occupancy rates between 72-82% annually, with seasonal variations ranging from 58-64% during low periods to 88% during peak seasons.

Average Daily Rates should range from $130-$210, following local market benchmarks and positioning strategy, with premium positioning achieving upper-range rates. These rates should increase approximately 3-5% annually based on market inflation and demand growth.

Revenue per Available Room (RevPAR) projections should fall between $100-$168, calculated from your projected occupancy and ADR figures. Year-over-year RevPAR growth typically ranges from 2-7% depending on market conditions and operational improvements.

Your five-year financial projections should account for market stabilization in years 2-3, with steady growth patterns emerging by year 4. Consider economic cycles and competitive market entry when developing conservative, base, and optimistic scenarios.

How much revenue will come from sources beyond room rentals?

Room revenue typically represents 60-75% of total hotel revenue, with ancillary services providing crucial profit margin enhancement.

Food and beverage operations can contribute higher percentages if your hotel positions itself as a local culinary destination. Event and meeting revenue provides significant seasonal opportunities, particularly for corporate and wedding markets.

What are the complete costs of building and operating your hotel?

Your capital expenditure structure should allocate 15-25% for land acquisition or lease costs, varying significantly based on city location and district desirability.

Construction and renovation typically consume 40-55% of total capital expenditure, while furniture, fixtures, and equipment (FF&E) require 10-16% of your initial investment. Pre-opening expenses, including marketing, staff training, and operational setup, represent 3-5% of capital costs.

Operating expenses break down with staffing and labor costs representing 45-54% of annual operational expenditure. Energy, utilities, maintenance, and marketing collectively account for 16-28% of ongoing operational costs.

Additional operational considerations include insurance, property taxes, management fees, franchise fees (if applicable), and technology systems maintenance. These typically add 8-15% to your annual operating budget.

We cover this exact topic in the hotel business plan.

What financing options work best for hotel projects?

The most feasible financing structure combines debt and equity with 25-35% equity contribution required, with the remaining balance secured through mortgage or commercial lending.

Your debt service coverage ratio (DSCR) projections should show base scenario performance of 1.50-2.10, optimistic scenarios achieving 2.40 or higher, and conservative scenarios maintaining 1.20-1.35 coverage ratios.

SBA loans, conventional bank financing, and private equity partnerships represent primary financing avenues. Construction-to-permanent loans offer advantages during the development phase, converting to long-term financing upon completion.

Alternative financing includes Real Estate Investment Trusts (REITs), crowdfunding platforms, and hotel management company partnerships that provide operational expertise alongside capital investment.

When will your hotel reach profitability?

Your hotel breakeven occupancy typically falls between 53-62% at projected Average Daily Rate levels, depending on your leverage structure and operational cost management.

Payback periods range from 6-8 years for midscale properties and 8-12 years for upscale and premium hotels, assuming stable market growth and absence of major economic disruptions.

Cash flow positive operations usually begin in months 18-24, while full debt service coverage may require 3-4 years of steady performance. Seasonal properties may experience longer payback periods due to revenue concentration in peak months.

Your breakeven analysis should include sensitivity testing for occupancy rate variations, ADR fluctuations, and operating expense increases to understand profitability thresholds under different market conditions.

What profit margins should you expect in the hotel business?

Well-managed hotel properties achieve Gross Operating Profit margins between 35-48%, with Net Profit margins ranging from 12-22% depending on cost control effectiveness and revenue mix optimization.

These benchmark margins align with STR (Smith Travel Research) and international industry standards for 4-star and boutique hotel properties. Premium luxury hotels often achieve higher margins through enhanced average daily rates and ancillary revenue streams.

Profit margin performance depends heavily on operational efficiency, particularly labor cost management, energy consumption control, and revenue management optimization. Successful hotels continuously monitor and improve these key performance indicators.

Seasonal variations significantly impact profit margins, with peak season margins often exceeding 60% while off-season performance may drop below 20%. Effective revenue management and cost flexibility become crucial for maintaining annual profitability targets.

It's a key part of what we outline in the hotel business plan.

How should you structure your hotel's staffing and organization?

Efficient hotel operations require 0.45-0.70 full-time employees per available room, balancing service quality expectations with cost control requirements.

• Front office operations including reception, concierge, and guest services require 24/7 coverage with 3-4 staff members per shift depending on hotel size
• Housekeeping departments need approximately one housekeeper per 12-16 rooms, with supervisory staff and laundry operations
• Food and beverage operations require kitchen staff, servers, and management proportional to restaurant and banquet facility capacity
• Maintenance and engineering staff ensure property upkeep, with 1-2 technicians for properties under 150 rooms
• Sales and marketing personnel focus on revenue generation, with 1-2 dedicated staff for mid-sized properties
• Administrative and management positions include general manager, assistant manager, and accounting personnel
• Security staff provide guest safety and property protection, particularly important for larger properties and urban locations

Your organizational structure should maintain flexibility to adjust staffing levels during seasonal demand fluctuations while preserving service quality standards that differentiate your property from competitors.

What risks threaten hotel profitability and how do you manage them?

Hotel operations face multiple risk categories including market volatility affecting occupancy and average daily rates, regulatory changes impacting operations, seasonal demand fluctuations, and unexpected macro-economic disruptions.

Market volatility risks include economic downturns reducing business travel, competitive oversupply in your market area, and changing consumer preferences shifting demand patterns. Economic recessions typically reduce hotel performance by 15-30% during downturn periods.

Regulatory risks encompass zoning changes, building code updates, labor law modifications, and health department requirements that can increase operational costs or restrict operations. Environmental regulations and sustainability requirements also impact long-term operational strategies.

Mitigation strategies include diversifying demand sources across business, leisure, and group segments, maintaining robust technology and marketing capabilities, implementing flexible staffing models, and securing comprehensive insurance coverage including business interruption protection.

Conclusion

This article is for informational purposes only and should not be considered financial advice. Readers are encouraged to consult with a qualified professional before making any investment decisions. We accept no liability for any actions taken based on the information provided.

Sources

1. Sabee App - Hotel Market Segmentation Strategies
2. TGM Research - Travel Accommodation Trends 2025
3. Vynta AI - Hotel Industry Segmentation
4. Oaky - Hotel Trends
5. Aninver - Demand Generators for Hotels
6. Food & Hotel Asia - Occupancy Rate
7. Hotel Tech Report - Competitive Set
8. SiteMinder - Hotel Star Reports
9. PrenoHQ - Top 7 Metrics Every Hotel Owner Needs to Know
10. EHL Hospitality Insights - Hotel Demand Management