How To Start Your Hostel Business: Complete Guide

Starting any business requires a significant amount of knowledge regarding such business. It involves investing your time, finance, and energy. Starting a hostel business is no different.

Hostels are affordable establishments ready to accommodate different people. They offer low-cost shelter, food, and other services.

As popular as hostels are, it can get a little tricky when it comes to starting this business from the scratch. The essence of this post is to shed light on all the primary concerns when it comes to starting a hostel.

In this article, we will be exploring a complete guide to starting your hostel.

Is It Profitable To Start A Hostel?

Before starting a hostel business, it’s expected of you to wonder just how much profit you can make from this venture.

The profitability of a hostel is highly dependent on factors that you; as the owner or manager control. Many hostels make decent profits. Since hostels operate by a business model that enables minimizing operational costs while maximizing profit, the only real obstacle to making your hostel profitable is the number of guests you’re able to attract and convert.

To give you a clear illustration of how much money your hostel business could be making, you can try out this free hostel revenue calculator .

Using a medium-sized hostel as an example:

100 beds at $22 per night = $2200 gross income per night when full. Even calculated with a conservative average of 50% average occupancy and the gross income is $1100 per night or about $30,000 per month.

Now you’re probably thinking - if hostel businesses are so easy to make profits off, why isn’t everyone doing it? Why aren’t all hostel owners cashing out?

Well, there are so many factors that set apart the successful hostels from the rest of the pack. Let’s explore that below!

What Makes A Successful Hostel Business?

As we just established, there are numerous hostels, but not all of them are successful. The question that every hostel owner asks is, ‘How do I make my hostel successful?’

The success of your hostel is directly dependent on the number of guests you’re able to attract. There are a host of ways that this can be made a reality and these are the most commonly observed tips successful hostels implement in their establishment.

Great Services

There are some basic services that your hostel must provide. These include good Wifi, a good Mattress, Safe Lockers, access to hot showers, and a tidy environment. As simple as these sound, guests see them as essential services.

Once you have the essentials nailed down, it’s time to explore additional services that will leave your guests impressed. Recreational spots like bars and mouthwatering attractions like complimentary breakfasts are extra services you could offer to boost your guest experience.

Cleanliness is also a service that makes hostels very appealing. Nobody wants to stay in a dirty environment. From well-laundered sheets and fresh-smelling rooms to ever-polished surfaces; guests love a hostel environment that is spotless. It serves as one of the best ways to keep more people coming.

Networking

Once you have a hostel that offers excellent services, you need to get the word out somehow. Of course, social media is a great tool for marketing your product to the world but, oftentimes in the beginning the most effective form of marketing is word of mouth (WOM).

WOM marketing is one of the most powerful forms of advertising as 92% of consumers trusts their friends over traditional media . This is why expanding your network is crucial to the success of your hostel.

You can do this by signing up with hostel associations. There are a great number of associations comprising different hostel owners.

You can also encourage WOM marketing by providing good customer service, giving exclusive information to your customers, and offering loyalty/referral programs.

“Networking is an investment in your business. It takes time and when done correctly can yield great results for years to come.”

Attractive Pricing

The best hostels in the world offer high value for the money they charge and oftentimes overly priced locations are selling a brand rather than the product itself.

Deciding on the sweet spot of pricing of your rooms is essential and that is why doing an in-depth market analysis as well as price analysis is unavoidable. These are key information that is included in a hostel’s business plan.

Based on your price analysis, you can find the most attractive pricing for your guests but generally as a rule of thumb, placing exorbitant prices on your rooms is more detrimental because hostels are notoriously known to be on the cheaper side.

Location

Location is the cornerstone of a successful hostel business. A prime location near popular tourist attractions, vibrant nightlife, and public transportation significantly increases a hostel’s appeal.

Guests prioritize convenience, often opting for places that reduce travel time to key sites. Moreover, a hostel situated in a safe, lively neighborhood fosters a sense of security and comfort, which is crucial for travelers, especially those new to the area.

Proximity to essential services like grocery stores, restaurants, and cafes also adds value, enhancing the overall guest experience. Additionally, being in a culturally rich or historically significant area can attract guests interested in immersive experiences.

The right location not only boosts occupancy rates but also justifies slightly higher pricing, contributing to the business's profitability. Ultimately, a strategic location is essential for establishing a hostel as a top choice in a competitive market.

Security

Security is paramount in a hostel, where guests share spaces and often carry valuable belongings. A secure environment builds trust and enhances guest satisfaction. Key measures include secure lockers for personal items, surveillance cameras in common areas, and controlled access to rooms via key cards or codes. Additionally, ensuring well-lit surroundings and the presence of staff or security personnel adds to the sense of safety.

Hostels should also educate guests about safety practices, such as locking up valuables and being aware of their surroundings. Clear signage and instructions on emergency procedures, like fire exits and local emergency contacts, are essential. Offering 24/7 reception services can address concerns and provide immediate assistance when needed. By prioritizing security, a hostel not only protects its guests but also fosters a reputation for reliability, encouraging repeat business and positive reviews.

Financial Management

Effective financial management is crucial for the success of a hostel business. Cost control ensures that operational expenses, such as utilities, staff salaries, and maintenance, remain within budget without compromising quality. This involves careful monitoring of expenses, negotiating supplier contracts, and optimizing energy usage.

Revenue management is equally important. Hostels can employ dynamic pricing strategies to maximize income by adjusting rates based on demand, seasonality, and local events. Offering different room types (dorms, private rooms) at varying price points helps cater to diverse guest needs, further optimizing occupancy rates.

Additionally, maintaining a healthy cash flow is vital, ensuring that the business can cover expenses during low-demand periods. Regular financial reviews and forecasting help in identifying potential issues early, allowing for timely adjustments. By balancing cost control with strategic revenue management, a hostel can achieve sustainable profitability and growth.

A Step-By-Step Guide to Starting Your Hostel

It’s great to have an idea of how to make your hostel business successful but, when you’re just starting, you need a detailed step-by-step process on how to bring your hostel to life in the first place.

Here is a step-by-step guide needed to start your hostel.

Define Your Dream Hostel

Defining your dream hostel is usually one of the first things that come to mind. You should have a mental picture of how you would like it to turn out.

It is necessary to spell out how you want your hostel to be. It makes the whole process feel less complicated.

One of the things it applies to is hostel aesthetics. This is basically how the hostel should look.

It must be inspired by what the audience would want. The internet is a great tool to utilize for this. Apps like Pinterest and even online travel agencies (OTAs) like TripAdvisor can help give you inspiration for your hostel design and overall aesthetic.

You can also try to find out what attracts people to your competitors’ hostels. This can be done by looking up the reviews of guests on their website.

Understand Basic Hostel Economics

Hostels have a pretty straightforward business model and once you understand it, it’s easy to manipulate it to your advantage.

For example, most people that use hostels are backpackers and students who are likely to be less financially buoyant and are looking for a place to crash. A smart hostel owner will attract this audience with affordable prices for the rooms and then offer extra add-on services that the guests may have not even thought about before.

These extra services. “The important point to understand here is that once you have the guests, you have the chance to sell them extra services. in all kinds of forms. This is key.”

‘What extra services can I provide?’ ‘How do I make them keep coming?’ These are questions you need to answer and remember to put yourself in your guest’s shoes and offer them truly useful services, not services fueled by greed but, by customer satisfaction.

Research The Market/ Local Competition

Finding out about your competition in that area is a great step. This ultimately helps you know what’s missing there, and how to step up.

Their qualities in terms of price, size, and general services should be looked at. This will help you know what to do to make your hostel stand out.

Knowing what the properties in that area are made of, is what a market survey is about. It is a great trick to help our hostel business succeed.

You get to know what is missing. This aids you in making these services available and attracting more people.

You also need to find out what other properties are available in the location you have chosen. The hostel should be close to places people frequent.

‘Are there interesting places close by?’ ‘Will the distance between the hostel and bars or restaurants be convenient enough?’

Also, if you’re aiming for a girls' hostel, you should take note of certain spots. A hairdressing salon is an important place to look out for.

Needless to say, nobody wants to stay in a place with unappealing stores. So, you will have to consider the kind of establishments that are in that location.

Develop A Business Plan

Developing a business plan is a critical step in launching a successful hostel. This plan serves as a roadmap, detailing your business goals and strategies to achieve them. Begin by defining your hostel's concept, target market, and unique selling proposition (USP). Include an analysis of your competitors and the market demand in your chosen location.

Next, outline your operational plan, covering the day-to-day management, staffing needs, and services you’ll offer. A financial plan is essential, detailing startup costs, funding sources, revenue projections, and pricing strategies. Include a marketing plan that explains how you’ll attract and retain guests through online and offline channels. Lastly, identify potential risks and develop contingency plans. A well-crafted business plan not only guides your efforts but also helps secure financing from investors or lenders.

Legal Structure and Planning

Choosing the right legal structure and obtaining the necessary permits are critical steps in establishing a hostel. The legal structure you choose—whether it's a sole proprietorship, partnership, limited liability company (LLC), or corporation—will impact your tax obligations, liability, and management responsibilities. An LLC is often preferred for hostels as it offers liability protection while allowing for flexible management and tax benefits.

Once your business structure is decided, you'll need to register it with the appropriate government authorities. This includes applying for an Employer Identification Number (EIN) if you plan to hire staff.

Obtaining the necessary licenses and permits is equally important. Depending on your location, this may include a business license, health and safety permits, fire department approval, and zoning permits. Compliance with local regulations, such as health codes and occupancy limits, is essential to avoid fines or shutdowns, ensuring that your hostel operates legally and safely.

Design and Renovation

Designing and renovating your hostel is a crucial step in creating a space that is both functional and inviting. Begin by planning the layout to optimize space for comfort and usability. Dormitories should be designed to maximize capacity without compromising guest comfort, using bunk beds and privacy curtains where possible. Private rooms should offer a bit more luxury while maintaining the hostel’s overall aesthetic.

Common areas are vital for fostering a social atmosphere, so ensure they are spacious, well-lit, and comfortable, with seating that encourages interaction. Bathrooms should be clean, modern, and sufficient in number to avoid congestion during peak times.

Renovation should focus on durability and ease of maintenance, with materials that are both stylish and practical. Safety is paramount, so incorporate fire alarms, emergency exits, and secure locks throughout. Your design should reflect your brand’s identity, whether that’s a cozy, rustic vibe or a sleek, modern aesthetic, making your hostel stand out to travelers.

Furnishing and Equipment

Furnishing and equipping your hostel is crucial for creating a comfortable and functional environment for guests. Start by selecting durable and practical furniture that maximizes space and meets the needs of your target market.

Invest in sturdy, space-saving beds with quality mattresses and secure lockers for guest belongings. Common areas should feature ample seating and social spaces to encourage interaction.

Equip the hostel with essential amenities such as high-speed Wi-Fi, reliable heating and cooling systems, and a well-equipped communal kitchen with appliances like refrigerators, microwaves, and stoves. Safety features, including smoke detectors, fire extinguishers, and security cameras, are vital for guest security and compliance with regulations.

Additionally, consider adding small touches that enhance guest comfort, like reading lights by beds, charging stations, and personal curtains for privacy in dorms. Properly furnished and equipped hostels not only meet guest expectations but also help in establishing a positive reputation and encouraging repeat visits.

Hiring Staff

Hiring the right staff is crucial for the success of your hostel. Start by recruiting individuals who are not only skilled but also genuinely enthusiastic about hospitality. Positions may include front desk staff, housekeeping, maintenance personnel, and a manager. Look for candidates with experience in customer service and a friendly demeanor.

Once hired, provide comprehensive training that covers all aspects of hostel operations, including check-in/check-out procedures, handling guest inquiries, and maintaining safety standards. Emphasize the importance of excellent customer service, as staff interactions significantly impact guest satisfaction and reviews.

Create a positive work environment by offering fair compensation, clear job roles, and opportunities for growth. Regularly evaluate staff performance and provide feedback to ensure they meet your hostel’s standards. Well-trained and motivated staff not only enhance the guest experience but also contribute to the smooth running of your hostel.

Marketing and Launch

Marketing and Launch are crucial for establishing your hostel’s presence and attracting guests. Start by developing a strong brand identity, including a memorable logo, engaging tagline, and a clear value proposition that highlights what sets your hostel apart. Build a professional website that showcases your hostel’s amenities, rooms, and unique features, and ensure it’s optimized for search engines.

List your hostel on major booking platforms like Hostelworld and Booking.com to reach a wider audience. Leverage social media to share compelling content, engage with potential guests, and create buzz. Consider offering pre-launch promotions, such as special discounts for early bookings or exclusive deals for followers. Collaborate with travel influencers or local media to boost visibility and generate excitement for your grand opening.

Where Should You Open Your Hostel?

Picking an appropriate location for your hostel is essential. As great as a hostel may seem, it may not be successful in the wrong location.

Selecting a good location is preliminary. This is because it determines your budget, the cost of renting your hostel, and many more.

Essentially, your hostel should be close to places people frequent. It should be close to parks, recreational centers, restaurants, and even colleges.

The daily life of an average youth must be considered. Nobody wants to rent a hostel that isn’t convenient enough to perform day-to-day activities.

Secure Finances For Your Hostel

You need to save up enough money to reflect your already prepared budget. It should be nothing less than the amount you planned to spend.

There are many ways to raise capital for your hostel business. You could look for a partner that is willing to fund the business. Seeking investors is another alternative to secure finances for your hostel business. It’s easier to find investors if your business appears promising.

Another way to secure finance for your hostel is by requesting a loan. There are a good number of banks ready to give out loans.

Hostel Start-Up Costs

You cannot successfully start a hostel business without having a realistic budget. You need to have an estimate of how much is needed to start it. This is addressed in full detail when you are writing your business plan.

On average, a student hostel business could cost about $19,815 to start with the minimum startup costs being as low as $100. If you’ve been reading this guide so far then you know the type of hostel you’re aiming for is most definitely going to cost you more than the minimum.

From equipment and supply expenses to staff salaries, advertising, and more, hostel start-up costs could cost a good amount. A good way hostels save up on excess management and operations costs is by leveraging technology and using all-in-one software to help them cut down costs.

How Do I Promote My Hostel?

Promoting your hostel isn’t a day’s job. The outcome is appealing, but the process can be tasking. Starting a business is one thing; Promoting the business is another.

You’ve opened your business, but how do you advance it? There are so many ways you can make this happen.

So, why don’t we take a brief look at ways that a hostel owner can promote his business:

Creating A Marketing Plan For Your Hostel

What kind of audience do you wish to attract? What kind of platform is best to advertise your hostel business?

It’s important to identify your target audience. Identifying your competition is important as well.

You should have marketing goals you want to achieve. Creating a marketing plan is the right step toward achieving these goals.

A market plan, as well as a business plan, must be created.

Maximizing Your Guests’ Experience

This is a very important way to promote your hostel business. Hostel visitors want exciting experiences to keep them coming back.

There should be bars, eateries, lounge areas, and other spots to let the load off. These are things that can heighten the guests’ experience.

Advertising Your Hostel

Advertising your hostel is so important. This is a technique that can never be overemphasized.

The world is digital now, and almost everyone has a social media account. Having an online presence is crucial.

The first thing you need is to take outstanding photos. Next, to advertise your vacation home rental, you need to take outstanding photos. The best route is to use a professional to capture the best features with the best lighting. For social media, engaging influencers can also be beneficial to getting the word out there.

On various platforms, when you upload your property, you’d have to write a property description. Now is the time to be creative and highlight what makes your property desirable. Also talk about the neighborhood, nearby facilities, and fun activities to do in the area.

Write the description with your guests in mind and sell the experience through your words. Some PMS like Booking Ninjas offers writing services when uploading your business on channels and it could be an option especially if you have multiple properties.

Optimize Your Online Presence

Optimizing your hostel’s online presence is fundamental for attracting guests. Start with a user-friendly website that features essential details, high-quality images, and a simple, secure booking system. Ensure the site is mobile-responsive, as many travelers book on the go.

Implement SEO strategies to rank higher in search engine results, making it easier for potential guests to find your hostel when searching online. Additionally, listing your hostel on major booking platforms like Booking.com, Hostelworld, and Airbnb increases visibility and credibility, allowing you to reach a broader audience and fill rooms more consistently.

Loyalty Programs

Implementing a loyalty program is a powerful way to encourage repeat business and foster guest loyalty. Offer returning guests discounts on future stays, complimentary services (like free breakfast or laundry), or exclusive access to special events. This not only incentivizes guests to return but also increases the likelihood of them recommending your hostel to others.

You can also introduce a points system where guests earn points for each stay or referral, which can be redeemed for discounts or upgrades. Personalizing these rewards based on guest preferences (e.g., a favorite room or activity) enhances the experience. Additionally, loyalty programs can be promoted through email newsletters and social media, keeping your hostel top-of-mind for past guests when planning future trips.

Collaborate With Travel Agencies and Guides

Offer Promotions and Discounts

Offering promotions and discounts is a powerful way to attract guests to your hostel. Early bird discounts can encourage travelers to book well in advance, securing your occupancy rates during slower periods. Conversely, last-minute deals can fill up beds that might otherwise remain vacant, maximizing your revenue.

Referral programs are another effective strategy. By offering discounts or perks to guests who refer friends, you incentivize word-of-mouth marketing, which is highly trusted and effective. Additionally, you can create loyalty programs where repeat guests earn points or receive exclusive discounts, fostering long-term customer relationships.

These promotions not only boost bookings but also enhance guest satisfaction, leading to positive reviews and repeat business, which are crucial for sustaining success in the competitive hostel industry.

Host Events and Activities

Hosting events and activities is a powerful way to promote your hostel and create memorable experiences for your guests. Social events, such as themed parties, movie nights, or communal dinners, foster a sense of community and encourage guests to interact, making their stay more enjoyable and increasing the likelihood of positive reviews and referrals.

These events also give your hostel a lively, welcoming atmosphere, distinguishing it from others.

Collaborating with local businesses or tour operators to offer unique activities, like guided city tours, hiking excursions, or cultural workshops, adds value to the guest experience and showcases local attractions. Such partnerships can lead to cross-promotion, where local businesses recommend your hostel to their customers, and vice versa.

Regularly hosting and promoting these events on social media can attract travelers seeking a vibrant, social environment, enhancing your hostel’s reputation as a fun and engaging place to stay.

Final Note

Hostels are some of the most common establishments we have today. They’re suitable to accommodate tourists, students, backpackers, and many more.

As common as they are, some hostels receive more patronage than others. It goes to show that they must be doing something right.

From growing your hostel bookings to advertising your hostel properly, certain software applications like Booking Ninjas Hostel PMS help to make starting and growing your hostel business a seamless process.

Hopefully, this article will help serve as a pathway for you to achieve a successful hostel business. You can now reach out to more people about your services. Starting a hostel business has never been this easy.

If you already have your hostel business in motion and are thinking of leveraging a hostel management system to grow your business, schedule a call with us today . We offer one of the top property management systems to help Hostel better manage and scale its business.

References

“ https://www.thebusinessplanshop.com/en/blog/how-to-open-a-hostel ”. The 9 Crucial Steps to Open a Hostel, Accessed 14 April 2022
“ https://bunkersbarcelona.com/how-to-open-a-hostel-from-scratch/ ”. How To Open A Hostel From Scratch (Step by Step), 23 July 2018, Accessed 14 April 2022
“ https://www.wikihow.com/Set-up-a-Hostel ”. How To Set Up A Hostel, 21 October 2021, Accessed 14 April 2022

“ https://www.xotels.com/en/hotel-management/how-to-open-your-dream-hostel-5-steps-to-succeed ”. Opening your Dream Hostel: the Simple 5-Step Plan for Success, Accessed 14 April 2022