How To Open A Hostel From Scratch (Step by Step)
July 23, 2018
Bored at work? In love with traveling? Want to work for yourself? Been there, done that. Let’s talk about how to open a hostel.
How To Open A Hostel: The Key Elements
1 – Location, Location, Location
Location is probably the single most important decision.
The location is the least flexible decision you need to take, once you chose the location, there is little you can do about it.
As a rule of thumb, central locations work better, if not central, the hostel should be next to a transportation hub (bus or train station) or a sight of interest.
Remember, the location is the most difficult element to change; give it the most thought.
2 – Get The Basic Travel Needs Covered
Most hostel guests are behind the following: cheaper beds combined with social interaction.
How to satisfy them? Well, the main checklist is the following.
- Good Wifi
- Good Matress
- Safe Lockers
- Hot Showers
- Nice Staff
3 – Understand Basic Hostel Economics
The key to making money in this industry is to make money beyond just ofering a place to sleep.
The really successful hostels make the money from extras beyond the price of the bed. This means with tours, restaurants, drinks, etc.
The important point to understand here is that once you have the guests, you got the chance to sell them extra services. in all kinds of forms.
A couple of examples. Poc Na in Isla Mujeres (Mexico) makes the most money from the drinks in the club. Los Amigos Hostel in Flores (Guatemala) makes the most money from the tour bookings, drinks and food. Same with Loki Hostels and Wild Rover in several South American locations.
4 – Cleanliness Is f**** important
Obsessive cleaning is the single most underrated contributor to a successful hostel story. Hostels that are perfectly clean will perform better.
One good example of a good cleaning strategy is Dream Hostel in Kiev. They devote a lot of resources to cleaning, but it’s one of the best ways to make sure that a hostel remains booked when increasing the prices.
How To Open A Hostel: Step By Step Guide
1 – Choose City
Where do you want to locate your hostel?
Big Cities work better as they might have less seasonality.
Smaller Towns might have less competition but are more vulnerable to seasonality
Beach / Mountain destinations are highly seasonal.
2 – Research The Market
- How is the competition
- How many hostels in town?
- Average price per night per bed
- Type of Traveler? Backpackers? Families? Weekend trips?
- Seasonal destination?
2 – Scout a Location / Building
The property should have a good location, optimally near the subway or bus stop.
Central locations usually perform best. A good example is how Dream Hostels always choose the best location possible.
House vs Flat?
As a rule of thumb, hostels work better in houses, with the exception of biiiig flats.
3 – Size / Scale Of The Hostel
The minimal number of beds for a hostel to work out economically is usually at around 20 beds.
Small hostel dorm combination:
1x 2-bed double
1x 4-bed dorm
1x 6-bed dorm
1x 8-bed dorm
4 rooms, 20 beds
Medium hostel dorm combination:
2x 2-bed double
2x 4-bed dorm
2x 6-bed dorm (mixed, female)
2x 8-bed dorm (mixed, male)
8 rooms, 40 beds
Large hostel dorm combination:
4x 2-bed double
3x 4-bed dorm
3x 6-bed dorm (mixed, female)
2x 8-bed dorm (mixed, male)
1x 10-bed dorm (mixed)
13 rooms, 70 beds
4 – Make A Business Plan
Now is the time to make an Excel sheet to calculate your expected results and required investments.
A business plan tries to estimate how well the hostel will perform economically.
For that you’ll need to estimate room prices, capacities, and costs.
Important to take into consideration here: are you buying or renting the property?
5 – Plan & Build Hostel
At this stage you’ll have to plan the execution of the business plan.
This means getting the rental / purchase, arranging for the repairs, buying and setting up the furniture, and getting the branding and sales marketing ready for the opening.
Finally, you’ll need to recruit and hire staff, and obviously train them.
6 – Start Operating
The date has arrived. You open your hostel. Congratulations!
The first couple of months will be about solving problems.
After that it will be more about managing expectations and optimising the performance of the business.
7 – Manage Capacity Utilisation (Empty Beds)
The hostel is open, but it turns out it is empty all week long but always full on the weekends. What to do?
At this point the most important aspect of the business is to minimise the number of empty beds per night to improve profitability.
An empty hostel loses money for sure, but a full hostel might also lose money if priced wrongly.
Running at a loss might be a temporary strategy to kick out competition, but it is not recommended unless you have very deep pockets and weak competition.
8 – Improve Guest Experience
The hostel is running, it makes money, and it is full. What to do? Improve customer’s satisfaction.
Happy customers will be willing to pay more for your services.
9 – Open Your Next Hostel
You’ve done well so far. Maybe it is the time to open another hostel? 🙂
How To Start A Hostel: Smooth Operations
Online Marketing and Sales:
The only two online platforms you need are HostelWorld and Booking. If you use them both, watch out for double bookings. Make sure you split the number of beds available at each platform or even better use a centralised tool to manage both platforms with one tool.
Remember that these platforms charge a commission ranging from 15-25%. This is A LOT of money on a yearly basis. Try to get customers to book directly to increase your profitability.
Hostelworld and Booking are great ways to attract customers, but very expensive. Try to increase direct bookings to improve your profitability.
First, get a solid profile, so that your hostel is competitive. Your profile should feature high-quality photos to seduce the traveler. It is a good idea to hire an interior photographer (25-100EUR depending on location and property).
Second, price your beds right. You want to be competitively prices when empty and less so when full.
This means that you might not sell out all your capacity at the same price per bed. The lowest you should price your beds is usually the operational cost of serving the guest plus the fix cost per bed. In other words, if a serving a customer (sheets, cleaning, breakfast) costs you 5EUR, your bed price should always be above that.
Third, monitor reviews and customer feedback constantly. Online platforms are great places to understand your customer. A good hostel manager should reply to negative feedback constructively.
Staff and Check-in Process
Staff needs to be trained in a consistent way to speed up the check in process politely and effortlessly. Most problems that a guest can encounter during his stay can easily be solved with a big smile, an apology, and a solution.
Do not underestimate the contact with the customer. The hostel experience starts from the first customer interaction. Make it count.
Staff should always speak fluent English, and possibly the local language. Staff with additional language skills should be hired depending on your most common guests.
Staff needs to be proactive, self-confident, and smart. Bad staff choice will be counter-productive.
Dorms, beds, and rooms
Dorms are a hostel’s bread and butter. While most hostels also feature doubles, dorms differentiate hostels from hotels.
Dorms need to be separated from hostel common areas. Noise is usually a problem in social hostels. In larger hostels, dorms should feature a card-access to increase security.
Dorms need to be sufficiently comfortable, safe, and private, within the scope of what is possible. the current trend of setting up curtains is a good example. Wooden panels are good alternatives but need to allow for enough ventilation.
Every bed should have at least one electrical socket or plug. Who doesn’t sleep with his phone nowadays?
Lockers are essential in dorms. Every guest should have a safe place to store his luggage and valuables. After all, otherwise the hostel system would not work. The locker should at least be able to hold a “daypack”, that is, a 20-30 liter backpack. Metal lockers are usually noisy at night, wooden lockers are usually dorm-friendly.
Investing in a decent mattress pays off. Cheap string mattresses will wear off quickly and won’t last long before you start hearing complaints about them. Latex or high quality foam mattresses are good alternative choices.
Mattresses should be equipped with a stain protector. Think about them as an insurance for the mattress. A protected mattress is much easier to clean and maintain. Under no circumstances should you allow people use their own sleeping bags: you run the risk of getting bedbugs.
Dorms should host max 10 people. In some occasions, larger dorms might work, but it is usually better to keep bed numbers low as guests will be less comfortable as the number of beds grow. One good example of smaller dorms is The Post Hostel in Jerusalem. The Wild Rover in Cuzco has pleasant maxi-dorms up to 20 people.
Female dorms are generally a great idea. Some female travelers prefer the privacy of female-only dorms. From the hostel manager’s perspective, you can instal a proper hair-dresser, a make-up mirror, and other perks. It’s no secret that hostels that are popular with girls are more popular in the long term. So treat them well.
Don’t underestimate a good breakfast. Some guests will book at a place with free breakfast just to save a EUR in the morning. But from the management point of view there is more.
Smaller hostels without a bar/cafe might not offer a breakfast service. In fact breakfast is a prefect opportunity for social interaction among guests.
So one common strategy is to offer breakfast included in the price of the night. This way most guests will attend and potentially meet up.
For those hostels that have an integrated cafe/bar, the system is similar but should offer fair prices to ensure sales and increase satisfaction. Again, there is an added value from getting people together, the socializing.
Have a look at some examples.
Classical Breakfast Buffet
Cook Your Own Pancakes Breakfast
Premium Hostel Breakfast:
How To Run A Hostel: The Cafe / Bar / Restaurant
Most Hostels make the majority of their profits on their cafes and bars. In fact, many hostels run a losing operation on the “bed”-side only to make it back on the bar.
Loki and Wild Rover hostel chains in South America are prime examples: cheaper beds but expensive drinks and wild “tourist”-only in-hostel parties.
In other words, if you manage to attract enough people, it might be a good idea to “subsidise” one side of the business (beds) to profit from another.
One business implication of running a subsidised bed scheme is to limit competition. You’ll limit the appeal for new competition.
If you run a big hostel (50-70 beds) and you price it extremely competitive (say at break-even), it’s very hard for competition to get in.
How To Run A Hostel: The Social Element
Meeting new people is one of the most important reasons for straying in hostels.
The best hostels are usually very social, as social interaction usually results in memorable travel experiences.
Guests who socialise also spend more money and stay longer. Guests who extend their previous reservations are also more likely to book direct thereby saving you the Hostelworld / Booking 15-25% commission.
Guests who stay longer than expected usually make you more money.
For this reason, you should have a strategy around it. Larger hostels have often staff working as disguised guests to encourage social interaction.
How To Manage A Hostel: Party Hostels
While some guests just want a bed, a shower, and good wifi, some just really want some social interaction.
Hanoi hostel scene is a prime example of how the social element is key to the success of the hostel.
The party hostels are the real money-makers. The truth is that their hostel side is more like an excuse to run the bar, as explained above.
Good party hostels include St. Christopher’s, Loki, Wild Rover, and more.
How To Manage A Hostel: Great Hostels In Barcelona
Do you need some inspiration? Have a look at Barcelona’s Top 10 Hostels