First and foremost, hotel owners don’t take a salary; they make a profit. While the industry is pretty tight-lipped about it, it is estimated that the average profit turned by a hotel chain owner is between $40,000 and $60,000 per year.
Hotel owners make money based on the profit of the hotel, meaning they will have to work out how much they want to make a year before setting their room rates to account for their salary. They pay themselves a standard amount per year and then invest the rest of their profits into the property.
Note that the average cost of a hotel room is $137 a night, but there are some luxury hotel suites that cost $80,000 a night to stay. Hotel owners are expected to be careful about how they price their rooms based on demand. A holiday weekend can potentially kick up prices by triple their normal cost or more, so it is crucial to set prices based on what people will pay.
In the United States, a hotel has huge profit-making potential. Some hotels make six figures per year. Others generate millions per year. Unfortunately, some hotels fail to make a profit. Note that the level of profitability depends on a number of different factors. Grow the business, expand to a second location and you will likely exceed the six figure mark. Continue to add locations and your hotel business will meet the million dollar profit range.
Have it in mind that any money that a hotel makes has to first go towards paying off the expenses of running the hotel. Paying the building costs, the electric and water bills, and the hotel staff have to come before the owner. This entails that, depending on how much money your hotel brings in, you might not even make any money of your own right away. That factor alone is why there are more office workers than there are hotel owners. One guarantees money, the other doesn’t.
The potential for a hotel owner to make a lot of money, even if it is not a guarantee, still makes the prospect of hotel chain ownership quite attractive. According to reports, Bill Marriott of the Marriott Hotels has a net worth of $2.2 billion, and all the most successful hotel moguls in the business cite their net worth at over one billion dollars.
Although you might start off with a measly-to-nonexistent profit, but you have a shot at becoming a billionaire. It is a small shot, but a shot nonetheless. People who have experience in the hospitality industry will have a head-start because they will have already seen many of the hiccups that come with running a hotel or a restaurant.
5 Factors That Influence the Yearly Income of a Hotel Owner
Here are basic factors that influence the annual income of an average hotel owner in the United States.
It is true in real estate, and it is true in the hotel business: location, location, location. Note that hotel guests will pay more to stay in the heart of Manhattan than in a small town in Iowa. And higher revenues mean a higher income almost invariably.
According to reports, the average hotel room in New York City costs between $240 and nearly $400 a night, depending on the time of year. Compare that to the average U.S. daily rate, which was $137 in 2014. If you have got both experience and a highly coveted location, you can expect to earn on the higher end of the salary scale.
Hotel Size And Class
Have it in mind that it takes a lot less blood, sweat, and tears to own and run a bed and breakfast with four rooms in the country than a 300-room monster of a hotel in a big city. In the latter case, there are a lot more employees to manage and a lot more finicky guests who need to be dealt with.
According to a recent report, owners of hotels in Paris with more than 200 rooms tended to earn a base income of about $166,000, 23% more than owners of hotels with fewer than 200 rooms. But it is not just size, it is also what class of hotel you own or even manage.
Note that the ownership of a five-star hotel will demand a lot from their hotel owner, but that increased responsibility comes with a big boost in pay, thanks to the fact that a luxury hotel will make a lot more per room than another hotel of a similar size that offers nothing more than a bed and a toilet.
Most times, business owners looking to own hotels prefer to acquire a franchise but hardly realize the full cost of franchise fees. Yes, there is the one-time franchise fee, but you may have additional monthly or annual franchise fees, as well.
For example, you might be expected to pay a monthly marketing fee, depending on your franchise agreement. This fee helps the franchisor pay for marketing the brand in national and/or local markets, which directly benefits you.
You might also be expected to pay a monthly royalty to the franchisor, as well, which could range from 4-12% of your profits, depending on your franchise agreement. Both of these recurring franchise fees are paid from your profits, further reducing your actual income.
Age of the Hotel
It may seem obvious, but if you own a hotel with a new or newer building, you will have fewer initial upkeep costs, which means more of your profit gets to stay in your pocket. Older hotels will more or less require more maintenance and repairs to keep them in optimal shape, which will cut into your annual profit, meaning less take-home pay for you. Don’t forget that in addition to maintenance staff, you will also need to think about:
- The difficulty of obtaining original parts for older equipment
- The possibility of lead or asbestos in older buildings that will need to be remediated at the time repair work is done
- The ability to replace damaged items with similar fixtures (furniture, carpet, lighting, bedding). You don’t want the new items to look jarringly out of place.
- Remodeling costs
Howbeit, an older hotel may come with a less expensive price when buying than a new build, so you will need to consider whether remodeling and repair costs are offset by the smaller up-front investment.
Finally, it is necessary to consider your operating expenses, since they will factor into the overall profitability of your Hotel. If you fail to plan for these expenses ahead of time, you won’t have an accurate idea of your weekly, monthly, or annual profit, and will have no idea what you will be able to count on as income from your business.
If you are able to craft an accurate budget from the beginning, you will have a direct idea of how much you can reasonably expect to earn from a successful hotel. Note that this goes beyond just the supplies you will need for the hotel (like linens) but includes the intangibles, such as business insurance, employee salaries, recurring franchise fees, and a high-quality point of sale system.
Globally, there has been a lot of talk about how the hotel business is being hurt by websites like Airbnb. Note that the amenities and service tend to be more intimate at private homes or property, which can be appealing for people who are sick of the corporate structure or lack of empathy on the part of hotel employees.
However, the growth potential for hotels can still be substantial for a number of reasons. For instance, there are still plenty of travelers out there who would prefer to stay at a hotel, especially considering that there is a certain level of hesitation for many people when it comes to staying with strangers.