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 you’ll have to make in your hostel startup adventure.
This is because 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 than suburban locations. If you avoid the center, make sure you set up the hostel next to a transportation hub (bus or train station) or a sight of interest. Otherwise you might have a hard time attracting customers to your location.
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
- Good Vibe
3 – Understand Basic Hostel Economics
The key to making money in this industry is to serve guests beyond just offering a place to sleep.
Cheap beds will get you guests, extra services will make you money.
The really successful hostels make the money from extras beyond the price of the bed. This means services such as pub crawls, tours, in-hostel restaurants, selling drinks, visa services, etc.
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.
A couple of examples. The great Poc Na in Isla Mujeres (Mexico) makes the most money from the drinks in the beach bar. Los Amigos Hostel in Flores (Guatemala) makes the most money from the tour bookings to Tikal, as well as their own in-hostel restaurant. Same with Loki Hostels and Wild Rover in several South American locations – which make money on the bars, not on the beds.
4 – Cleanliness Is f**** important
Obsessive cleaning is the single most underrated contributor to a successful hostel story. Clean hostels make more money and survive longer.
One good example of a fantastic cleaning strategy is Dream Hostel in Kiev. Their cleaning expenses are very high, but their obsession with cleaning has become one of their best competitive advantages. High cleaning standards make sure the hostel remains booked even when increasing the prices.
How To Open A Hostel: Step By Step Guide
1 – Choose A Location
Where do you want to locate your hostel? Do your homework and give this point enough thought. You can’t change the location easily.
- 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.
If you need some ideas, try researching the air traffic statistics in Europe. The logic is as follows: airports growing will require new accommodation.
Thus, setting up a hostel in cities with a growing airport is probably a good idea.
2 – Research The Market
- How strong is the competition?
- How many hostels are there in town?
- What is the average price per night per bed?
- Type of Traveler? Backpackers? Families? Weekend trips?
- Is it a seasonal destination?
2 – Scout a Location / Building
You should chose a location for the hostel carefully.
The property should be in 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 or buildings. Smaller hostels can work well in very large flats.
3 – Size & Scale Of The Hostel
20 beds is the minimum number of beds recommended for a hostel to work out economically. Don’t start a hostel with less than 20 beds, even 30 beds is a tight call for many destinations.
Less beds means less income per day, and higher fixed costs per bed. Hence, again, focus on 30+ beds hostel plans.
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 some numbers.
Start creating an Excel / Google sheets model to calculate your expected results and required investments.
The goal here is to create a simple business plan that estimates how well the hostel will perform economically, given a set of assumptions.
For that you’ll need to estimate the target room prices, average capacity utilisation, and costs of operation.
One element of key importance here: Are you buying or renting the property?
5 – Plan & Set Up The 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: Open Your Hostel
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 (Minimise 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
At this point, the hostel is running well, it makes money, and it is full constantly. What to do?
Now’s the time to improve the level of customer’s satisfaction.
Happy customers will be willing to pay more for your services. Which means you could adjust prices upwards.
Also, satisfied customers will give you better reviews, promote your hostel to other travelers, and even want to volunteer at your hostel.
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:
Watch out for double bookings, if you use them both simultaneously. Make sure you split the number of beds available at each platform or even better deploy a centralised online 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.
How to increase the profitability of your hostel?
Get customers to book directly with youfor an instant 15% income boost.
Hostelworld and Booking are great ways to attract customers, but very expensive. Try to increase direct bookings to improve your profitability.
First, build a solid online presence, so that your hostel be competitive against its peers. Your profile should feature high-quality photos to seduce the traveler. It is a good idea to hire a professional property photographer (25-100EUR depending on location and property).
Second, price your beds right. You want to offer sharp prices when you are empty and less so when you are full.
This means that you might not sell out all your beds 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 needs. Make sure you pay attention to your customer reviews.
A great hostel manager should always reply to negative online feedback constructively, and implement solutions to the problem so that noone complains ever again.
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.
Dorm Design & Room Tips
Dorms are a hostel’s main offering. While most hostels also feature doubles, dorms are what differentiates 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.
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.
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.
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.
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 more dorm-friendly. Let guests use their own padlock, and make sure you can rent/borrow/sell some locks for those who forgot theirs.
Mattress & Bunk beds
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.
Don’t discard serving a free breakfast right away.
Serving complimentary breakfast is a prefect opportunity to foster social interaction among guests.
A good breakfast keeps people talking about it on the road. Do you know any good hostel in Jerusalem? Yes! Stay at The Post, it’s super cool and the breakfast is awesome!
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 with an integrated cafe/bar, the system is similar but should offer fair prices to ensure sales and increase satisfaction. Again, getting people together makes socialising easier and chatty customers leave better reviews.
Have a look at some breakfast examples.
Classical Breakfast Free Buffet
Cheap Alternative: Cook Your Own Pancakes Breakfast
Premium Hostel Breakfast:
How To Run A Hostel: The Cafe-Bar / Restaurant
Almost all well-run 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 pricey drinks and wild guest-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.
If you can’t afford social hosts, just try to sit with solo guests and ask them some basic generic questions. Usually solo travelers get quickly very chatty.
How To Manage A Hostel: Party Hostels
While some travelers just want a bed, a shower, and good wifi, some guests just travel to meet people and party.
Budapest, Barcelona, Prague, and other European cities are party capitals. So are Asian cities like Hanoi, where the hostel scene is a prime example of how a successful social connection is key to the success of any hostel.
Party hostels are the real money-makers. They run the hostel mostly to gather customers and then send them to the bar.
Good party hostels include St. Christopher’s, Loki, Wild Rover, and many more.
We reached the end of this guide about how to open a hostel.
Where do you want to launch a new hostel?