Do you want to start a hotel business and you want to know the cost breakdown? If YES, here are 15 factors that determine the cost to build and open a hotel.
All over the world, the hospitality business is seen as a very serious trade and the reason for this is not farfetched. The reason the hospitality business – especially hotel business is being taken seriously is because of its relationship with the tourism industry.
If you are considering opening a hotel in the United States of America, it is important to point out that several factors can determine the actual cost of launching this type of project. The truth is that some of the factors may not apply to you, but the business model and the kind of business a person wants to build would affect the overall cost of the business.
These factors are unique to each individual and this article may not cover such. Having said that, here are some of the factors that will influence the cost of opening a hotel in the United States of America;
Estimated Cost Breakdown for Starting a Hotel Business
The cost analysis as it relates to starting a standard hotel business in the United States of America, Canada, United Kingdom, and Australia can be said to be almost the same except for few variations. These are the key expenses you are expected to make when starting a medium scale but standard Hotel business in the United States of America
- The total fee for registering the business in the United States of America – $750.
- Legal expenses for obtaining licenses and permits (Health department license and business license) and permits (Fire department permit, Air and water pollution control permit, Sign permit et al) as well as accounting services (CRM software, Payroll software, P.O.S machines and other software) – $15,300.
- Marketing promotion expenses for the grand opening of the hotel in the amount of $3,500 and as well as flyer printing (2,000 flyers at $0.04 per copy) for the total amount of $3,580.
- The cost for a hiring business consultant (including writing business plan) – $2,500.
- The cost for insurance (general liability, theft, workers’ compensation and property casualty) coverage at a total premium – $30,400.
- The cost for leasing a standard facility in a good and centralized location – $450,000
- The cost for remodeling the facility to fit into a standard hotel – $800,000.
- Other start-up expenses including stationery ($500), phone and utility(gas, sewer, water and electric) deposits ($20,500).
- The operational cost for the first 3 months (salaries of employees, payments of bills et al) – $120,000.
- The cost for start-up inventory and equipment (supply of food ingredients and drinks, beds and pillows, cabins, racks, fridges, kitchen gadgets, washing machines, bar equipment amongst others) cleaning supplies ( soap, detergents/washing powder, bleach, starch/adhesive, laundry bags, invoices for wash-and-fold, bathroom supplies, racks, and hooks/hangers et al)- $45,000.
- The cost for store equipment (cash register, security, ventilation, signage) – $13,750.
- The cost for the purchase of furniture and gadgets (flat screen TVs, sound systems, telephone, printing machines, computers, tables and chairs et al) – $40,000.
- The cost of purchase and installation of CCTVs – $15,500.
- The cost for building and hosting a website – $600.
- The cost for opening party – $20,000.
- Miscellaneous – $50,000.
You will need an estimate of two million, five hundred thousand dollars ($2.5 million) to successfully set up a medium scale but standard hotel (within the category of 4 Star) in the United States of America.
Please note that this amount includes the salaries of all the staff for the first 3 months of operation and a hotel with basic services and facilities such as lodging, meals (local delicacies, Chinese cuisines, intercontinental cuisines et al), drinks (wines, beers, distilled spirits, martinis, beverages and non–alcoholic drinks), swimming pool, gym, self – service laundry room, business center, mini mart, conference room, banquet venue, childcare and shuttle service et al.
Starting a small scale but standard hotel business with minimal lodging and facilities that can only service a handful of clients per–time in just one location in the United States of America will cost about seven hundred and fifty thousand dollars to one million dollars ($750,000 to $1 million).
When it comes to starting a standard and large scale hotel business in the range of 5 star with services and facilities such as lodging, meals (local delicacies, Chinese cuisines, intercontinental cuisines et al), drinks (wines, beers, distilled spirits, martinis, beverages and non – alcoholic drinks), swimming pool, gym,
Self – service laundry room, business center, mini mart, conference room, banquet venue, childcare and shuttle service et al in the United States of America and a hotel with the intention of selling franchise, then you should look towards budgeting well over five million dollars ($5 million).
Factors That Determine the Cost of Opening a Hotel
1. The Type of Hotel
A major factor that will determine the overall cost of opening a hotel in the United States of America is the type of hotel the owner wants to build.
There are different types of hotels such as Lifestyle luxury resorts, Upscale full-service hotel, Boutique hotel, Focused or select service hotel, Economy and limited service hotel, Extended stay hotel, Timeshare and destination club hotel, Motel and Microstay hotels amongst others.
There are also different categories of hotels represented as stars. You will quite agree that the cost involved in starting a seven-star hotel will be far different from the cost of opening a motel. Upscale full – service hotels often provide a wide array of guest services and commonly found amenities may include; meeting and conference facilities, fitness center, and business center.
Upscale full-service hotels range in quality from upscale to luxury. This classification is based upon the quality of facilities and amenities offered by the hotel. Examples include: W Hotels, Sheraton, Langham, Kempinski, Kimpton Hotels, Hilton, Lotte, Renaissance, Marriott and Hyatt Regency brands.
2. The Choice of Location
Another major factor that will determine the cost of opening a hotel in the United States of America is location. In business, location is a part of what determines the success of the business. Hotels are part of human lifestyle hence it must be located in a good location; a location that is highly secured and easily accessible from airports and business districts if indeed you want to maximize profit from the business.
It cannot be over-emphasized that the location you chose to open your hotel is key to the success of the business, hence entrepreneurs are willing to rent or lease a facility in a visible location; a location where the demography consist of people with the required purchasing power and lifestyle.
If you make the mistake of renting or leasing a facility for your hotel business in a not too visible or hidden location simply because it is cheap, then you must be prepared to spend more in promoting the business and perhaps giving direction to potential customers.
For example, a hotel facility in a location that is off the city center or off a major road will be less expensive when compared to renting or leasing a hotel facility in a highbrow area; a location along a major road with high vehicular and human traffic.
3. The Required Licenses and Permits
In the United States of America, you cannot open a hotel without first applying for licenses and permits. You would need food and drinks handling license, building license, zonal permits, kitchen permits amongst others. These license and permits cost money and it will influence the overall cost of opening your hotel in the United States of America.
Please note that there may be several inspections you must pass before you can be issued your licenses and permits – this will also cost you money.
In order to get the overall cost of licensing and permits associated with opening a new hotel in the United States, we will advise that you reach out to your city government. You also need to consider state and federal requirements, so do your homework long before you set a date for the grand opening of your hotel.
4. The Type of Facility
The type of facility you want to run your hotel business in is also a major factor that will determine the overall cost of opening the hotel. As regards the facility, you have the option of renting, leasing or designing and constructing your own facility from the scratch.
When renting and leasing a facility, you might just have to spend extra to modify the facility to fit into what you have in mind, but there is a limit to how far you can go and it will be dependent on what the landlord of the facility wants. Let us assume that you want to construct your hotel from the scratch.
It means that you will buy the land or a property, bring up your design and of course construct and equip the hotel facility to fit into the ideal picture you have in mind. You will agree that you are going to spend way more when compared to people that rent or lease a facility. This indeed will greatly influence the overall cost of opening your hotel.
5. Menu and Services Offerings
Another key factor that will determine the cost of opening and operating a hotel in the United States of America is of course, the menu and service offerings of the hotel. The fact that there are different types of hotels means that these hotels are designed to serve different menu and offer different services.
For example, the services offered by Lifestyle luxury resorts will be far different from the services offered by Economy and limited service. Small to medium-sized hotel establishments that offer a very limited number of on-site amenities normally only cater to a specific demographic of travelers, such as the budget-minded traveler seeking a “no frills” accommodation.
Limited service hotels often lack an on-site restaurant but in return may offer a limited complimentary food and beverage amenity such as on-site continental breakfast service. Most focused or select service hotels may still offer full service accommodations but may lack leisure amenities such as an on-site restaurant or a swimming pool.
6. The Number of Rooms Available in the Hotel
Another very important factor that determines the cost of opening a hotel in the United States of America is the number of rooms available in the hotel. No doubt, the budget for opening a 50 – room hotel facility will be far above the budget for opening a 10 – room facility.
Aside from the cost of constructing these number of rooms, it will also cost you more to furnish and equip the rooms and the more the number of rooms, the more the money that you are expected to spend.
7. The Cost of Hiring and Paying a Business Consultant and Attorney
As expected, if you want to get your business started on the right foundation, it will be a wise decision to hire the services of a competent business consultant and perhaps an attorney. A business consultant will help with drafting a workable hotel business plan document, a marketing plan and strategy, comprehensive SWOT analysis, and other advisory or things that will help you with opening the business.
So also, an attorney will help you with registering the business, drafting contract documents and offering you all the legal expertise that will help you start the business on the right foundation. These services will cost you money and it will indeed influence the overall cost of opening your hotel.
8. The Cost for Branding, Promotion and Marketing of the Hotel
The cost for branding, promoting and marketing the hotel is yet another key factor that will determine the overall cost of opening a hotel in the United States of America. Trust me, if you need massive marketing results, then you must be willing to pay for effective branding and promotion.
As a matter of fact, it is not cheap to come by an expert in branding, promotion and marketing that will help you compete with brands that are already determining the market direction of the hotel cum hospitality industry in your city. So, if you add the cost of paying a branding and marketing expert, it will sure increase the cost of opening your hotel.
9. The Cost for Furnishing and Equipping the Hotel
Another factor that will determine the cost of opening a hotel is of course, the cost for furnishing and equipping the hotel.
The cost of furnishing and equipping a hotel is massive. You will quite agree that aside from the basic facilities that are expected to be found in a hotel, an investor that wants to open a hotel may decide to spend more than expected to furnish and equip the hotel to look unique.
Before you can open a hotel, you should budget for beds, wardrobes, chairs and dining tables, gas cookers, deep fryers, fridge, deep freezer, microwave oven, storage hardware (bins, rack, shelves, food case), counter area equipment (counter top, sink, ice machine, etc.), (Flat Screen TVs, sound system,
DVD players, Pianos, Satellite dish and decoder, furniture (table, stools and sofas), telephones, filing cabinets), store equipment (cash register, security, CCTV, ventilation, signage), serving utensils (plates, ash trays, glasses, flatware) and fancy lightening amongst others. All these will cost money and it will influence the overall cost of opening a hotel in the United States of America.
10. The Cost for Insurance
The cost for paying for insurance policy cover is yet another important factor that will determine the overall cost of opening a hotel in the United States of America.
Interestingly, you can’t operate a business without having some of the basic insurance policy covers that are required by the industry you want to operate from. Thus, it is imperative to create a budget for insurance and perhaps consult an insurance broker to guide you in choosing the best and most appropriate insurance policies for your hotel business.
11. The Cost for Registering the Business
The cost for registering the hotel is yet another cost that will influence the overall cost of opening a hotel in the United States of America. As a matter of fact, you cannot legally operate any business in the United States or most countries of the world. Although, the cost of registering a business is affordable, it will no doubt add to the overall cost of opening the hotel.
12. Source of Your Ingredient and Drinks
Another major factor that will determine the cost of opening a hotel in the United States of America is the source of your ingredient and drinks. The fact that there are different types of hotels means that the ingredients they use in preparing their meals will be different and the source of their drinks will be different.
For instance, if a hotel serves drinks that are not manufactured in the United States, it means that they will spend more to import these drinks and perhaps their unique ingredients into the United States of America.
13. Cost of Recruiting and Training Your Staff
The fact that you are opening your hotel as a new business means that you are expected to recruit and train your staff to conform to the picture of the kind of hotel you want to operate. The training will help you sell the corporate culture of your organization to the new employees. It will cost you money to hire expect trainers and that will add to the overall cost of opening your hotel.
When it comes to starting a standard hotel business on a large scale, you would need the services of the following professionals;
- Chief Executive Officer (Owner)
- Hotel Manager
- Human Resources and Administrative Manager
- Merchandize Manager
- Marketing and Sales Executive
- Facility/Maintenance Manager
- Marketing Officer
- Front Desk Officer
- Cleaners/Washer men
- Security Officers
14. The Cost for the Purchase and Customizing of Uniforms, Bedsheets, Pillowcase, Towels, Napkins, Table and Chair Covers
Another factor that will determine the overall cost of opening a hotel in the United States is the cost of purchasing and customizing of uniforms, bedsheets, pillowcase, towels, napkins, table ad chair covers amongst others.
Room attendants, waiters, waitresses, chefs, other kitchen staff, laundry workers and security personnel all have different uniform and they are expected to put on these uniforms when they are on duty. All these uniforms will cost you money which is why it must be part of your budget if you are looking towards opening a hotel in the United States of America.
15. The Cost of the Grand Opening of the Hotel
No hotel opens its door for business without first organizing an opening party to officially launch the business. This means that the cost of the grand opening will determine the overall cost of opening the hotel.
You can choose to do a soft opening if you are operating on a low budget or you can choose to go for a grand opening party. The bottom line is that it is a cost that must be part of your budget and this cost will influence the overall cost of opening the hotel.
How Much Does It Cost to Buy a Hotel Franchise?
In the United States of America, the Average Cost of Purchasing a Hotel Franchise is: Initial Franchise Application Fee ($85,000 plus and additional 300 for each guestroom in excess of 275 guestrooms). Examples of 3 Well – Known Hotel Franchising Companies in the United States of America are;
- Wyndham Hotels and Resorts
- Hilton Hotels & Resorts
- Marriott International
Can a Hotel Business Be Bootstrapped on a Lean Budget from Home?
Because of the nature in terms of size and cost of the facility and equipment involved in starting and operating a hotel, it is obvious that it cannot be bootstrapped on a lean budget from home. As a matter of fact, the business is open to the general public and you would not want complete strangers to continue to storm your house on a regular basis and at different times of the day simply because you want to run a hotel business.
On the other hand, if you want to start a similar business such as bed and breakfast business, then you can successfully bootstrap the business on a lean budget right from your home especially if you already have the required spare rooms and other key facilities on ground.