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How to Write a Compelling Hotel Business Plan

After you have decided to start a hotel business, it is now time for you to write the hotel business plan. This is a crucial area because this plan will play an important role in getting the funds for your hotel business.  Many of you get confused about what to write in the business plan and often end up writing details about your idea for a hotel business.

As a result, it becomes boring and clueless for the financiers. Many of you might not know how to write financial details. That is also a big limitation as far as writing your business plan is concerned.

So, you must know what to write and whatnot. Give the information needed to write your hotel business plan but in a very methodical way. Write your business plan in such a way, that your lenders are excited about your project and not confused or bored.

Make the business plan in the right direction for your hotel business. Be clear and crisp about the ideas, information as well as calculations. And, last but not least, make the first page of your hotel business plan a reflection of your entire concept so that the lenders get the essence from the first page itself.

Here are the 10 Steps to Write a Hotel Business Plan

1. Executive Summary

It has two parts: Mission Statement & Objective

The mission statement will tell very briefly, the essence of your hotel business and also why you are in this business as well as which needs are you going to fulfill.

The objective will tell you about your hope for the hotel business. For example, an average annual occupancy rate of 80-85%.

Read: How to Write an Executive Summary

2. Company Analysis

Give detailed information on your proposed hotel. Write down the Unique Selling Points (USP) of your hotel business.

3. Industry Analysis

Write down the current trend in the hotel industry with relevant statistics. Also, mention the current state of the economy with supporting statistics. This will create a positive impression of you that you have an in-depth understanding of the hotel business you are going to start.

4. Customer Analysis

You have to decide about the prospective customer profile of your hotel business. Give a detailed study of their socio-economic, demographic, geographic, and behavioral features. Also, try to highlight in what way your hotel is going to fulfill their needs in terms of stay, food& beverages, and other amenities. Precisely explain why your customers will pay repeated visits to your hotel and also work as points of referral.

Suggested Read: Top Profitable Hotel Business Ideas

5. Competitive Analysis

Give a well-researched study of the local and global competitors of your hotel, their strengths, weaknesses, opportunities, and costs (SWOT) analysis. With that, point out where your hotel is going to be different and unique.

6. Strategic Planning

In the case of marketing, give details of your marketing plan. How will you market your Hotel business, what will be your marketing message? What about the website and SEO, SEM, and SMM? Explain your marketing strategies, whether you will use an online platform or not etc.

In terms of distribution, mention the third-party channels you will use and the steps as well as the technology you will follow to manage availability.

In revenue planning, categorically mention your pricing and realization methods. Along with it, give details of the payment and cancellation policies of your hotel.

7. Operational Planning

In this section, you have to write down the details of the operations of your hotel. This includes the number of staff, their responsibilities, job profile, and candidature. Along with it, write down the working hours, service manuals, and list of suppliers you are planning to include, the methods to manage the inventory, etc.

Check: Unique Hotel Business Name Ideas

8. Management Team

Provide the bio-data of all the members of your team. If you have decided to set up a board of advisors, then give details of their profiles also. Market your credentials and highlight what makes you eligible to run the hotel business.

9. Financial Projections

This is the most important part of writing your hotel business plan. Give details of the capital investment, ongoing expenses, capital expenditure, etc. Give a 5-year projection of your revenue. Within this projection, include the expected occupancy, average daily rate (ADR), and revenue per available room (RevPAR).

If you are raising money, mention how much funding you need and when. Explain how you will generate a return on investment for investors, or when you will be able to pay back the lenders.

10. Appendix

In this section of your hotel business plan, give the relevant data and statistics. Don’t give them in the main section of your write-up. That will make your business plan clumsy and difficult to follow. Mention the reference in the main section and put the data in this section.

The 20-Point Checklist of Your Hotel Business Plan

Now that you have completed writing your hotel business plan, you must give it a second reading. While checking it, you must see that it contains the following points:

  • Company Overview
  • Market Overview
  • Relevant Market Size
  • Target Customers
  • Customers’ Needs
  • Competitors- Direct & Indirect
  • Your Edge over the Competitors
  • Products & Services
  • Pricing
  • Promotion & Distribution
  • Operational Process
  • Milestones you Hope to Achieve in Future
  • Members of the Management Team
  • Members of Board
  • Revenue Model
  • Financial Highlights
  • Projected Income for the coming 5 years
  • Funding Requirements
  • Repayment Schedule
  • Supporting Documents

Carefully check, whether you have covered all these points in your hotel business plan or not. If you have missed any of these, try to incorporate that into your business plan.

SWOT Analysis of Hotel Business

To succeed in your hotel business, you have to do a SWOT analysis of the Hotel Industry in general. SWOT stands for Strength, Weakness, Opportunity & Threat. This analysis helps you to develop an effective strategy for your business.

A new business should always use this type of analysis as part of its overall planning process. Because a wise business strategy depends on knowing the business strength and weaknesses of that business and turning those weaknesses into a natural advantage.

Now, let us do a SWOT analysis of the Hotel Industry.

a) Strength of Hotel Business

Hotels provide people with a safe place to stay when they are away from home. There is room for everyone with any budget-from boutique to budget hotel. So, be it for business or pleasure, hotels provide rooms and other amenities to people.

Along with doing their business hotels also contribute a great deal to the economy. People staying at a hotel go to different tourist places, local restaurants, and coffee shops and also buy locally available things. The money they spend makes the local economy stronger.

b) Weakness of the Hotel Business

 The main weakness of the hotel industry is the price. The high-priced star hotels are limited to a particular class of demography. Moreover, hotels are charged higher taxes in most countries. That makes the price all the higher. Other industries normally don’t face such high taxes.

c) Opportunity for the Hotel Business

Hotels can change or add more facilities or attractions to have a greater occupancy rate. You can add some features according to the preference of the local community and attract more tourists.

Hotels also have an opportunity to attract tourists all year round. The peak seasons bring domestic and international tourists on the one hand, while on the other hand, the offseason attracts the local tourists who often wait for that time of the year.

d) Threat to the Hotel Business

The primary threat to the hotel industry is the boutique kind of arrangements that are now prevalent in many places. There, the exclusive needs of the guests are fulfilled at a much lower cost. Sometimes more personal care and attention are also given.

Another threat is any political unrest in the area of the hotel. In such cases, tourists don’t prefer to visit any disturbed area. As a result, the tourism industry including the hotels suffers major losses.

Study these four categories as you examine the potential of a new hotel business plan and you will be able to quickly adapt to changing circumstances because you know about the threats and opportunities, as well as your strengths and weaknesses.

Pricing Strategy

Like every business, the main objective of your hotel business is to earn more profit. If you’re opening a new hotel, the amount you charge matters. The right pricing is so important, that it is the difference between success and failure. There are three major pricing strategies you can learn to decide the best approach for your business. These are:

  • Cost-Based Pricing
  • Customer-Based Pricing
  • Competitor-Based Pricing

a) Cost-Based Pricing for a Hotel Business

This pricing strategy offers the simplest approach. For your business to be successful you need to not only cover your costs but make a profit in the process. You have to start by adding up all the costs of running your hotel. Include both fixed and variable costs. For example — land/building taxes, insurance, wages, maintenance, security, advertising, telephone, etc. Then depending on the profits, you want to make, you add a hike in each room to earn your desired profit.

So, if your fixed costs including mortgage, taxes, insurance, etc. amount to $5,000 a month, and your variables are $50 per guest, you know you need to make at least $5,050 to cover your costs every month.

The profit you want to earn will take you to your total amount for the month. Then you divide this figure by the number of guests or rooms you can rent and price accordingly.

This structure is logical, simple, and easy for you to understand. It is also flexible because if your cost changes, you can change the price accordingly. This also makes sure that every time you are earning profit.

This structure has its disadvantages too. It does not take into account your competitors’ prices and the demand of your customers. It is less competitive and not based on perceived value.

b) Customer-Based Pricing for a Hotel Business

This strategy is based on perceived value. If you can offer the comfort and amenities customers demand, they can pay that price without caring about your underlying price. They care more about their comfort and value.

For example, if you charge $200 a room, but the customer pictures the wonderful memories they’ll make and the chance to unwind in luxury, they see your price as worth the money. It doesn’t matter what is the cost to you. All that matters is if the demand for your hotel exists and if your customers are happy to pay according to that.

This kind of pricing allows you to maximize your profit as well as customer satisfaction. You can also increase the price according to the demand. If you can research well, you can also predict what the customers will be willing to pay.

The disadvantages of this strategy are if the customers find your price too high, they can change. Also if your competitors offer a lower price they can switch over. If the demand for your hotel is low, your profits also decrease. And it does not consider what you need to cover your cost.

c) Competitor-Based Pricing for a Hotel Business

Competitor-based pricing means you should conduct a complete assessment of your competitor’s pricing strategy. Consider the rates they apply for every room type, the different amenities, their refundable and non-refundable terms, etc. Only after considering all variables will you have a clear picture of what to charge.

The advantage of this type of pricing is that it is good for a highly competitive industry like the hotel industry. It allows you to make a distinct place for yourself. You can also draw more customers according to your positioning in the price structure.

The disadvantages of this pricing system are that in the stiff competition, you are often forced to lower the profit or standard of your service. Moreover, you have to find new ways of attracting customers other than the price.

Setting your prices is not that easy. You may find by using a combination of pricing strategies you’ll get a better result.

You may start with the cost-based method to ensure you’re always covering your costs, but mix a competitive pricing strategy so you can offer customers the best price.

Many people have great ideas. But to be an entrepreneur, you have to jump into action to turn your ideas into reality. If you are convinced to start your hotel business, put your ideas in pen and paper. Remember to cover all the aspects of your hotel business plan to convince the investors. Write a well-researched, well-thought hotel business plan and go for your dreams.