Clearly a tourism-based establishment, running a hostel can be a lucrative endeavor if you do it right.
The market for hostels is a well-defined one…typically a younger backpacking crowd. This will affect your pricing, your amenities, any contingent businesses you may develop in congruence to your hostel, and your marketing techniques.
Location is a key variable in creating a successful hostel. Ideally, you will be in a town on a “travel-circuit,” which means a main stop along a popular travel route in a region.
A hostel does not necessarily need to be located in the center of town, which is also likely to be the most expensive location. The best location for a hostel really depends on what type of travelers you are after and what experience you want to offer to your guests.
A good location could be close to a long haul bus station or a train station, which means travelers do not have to go far to get to their hostel when they arrive late at night or early in the morning.A good location could be close to some of the major tourist sights.Or a good location could be a location where guests get to experience the real city.
Surfing villages are also ideal spots for hostels, as surfers will flood in to town every time there is a good break. And tourists will come throughout the year to enjoy surrounding beaches.
You will want to set yourself up somewhere you are sure of a high tourist flow. Even the most popular destinations have slow seasons—you want to make sure you are somewhere you can make enough during high-season, to ride out the low-season downtime.
Concept and Experience
It is important to incorporate a clear concept for your hostel, something that will offer your guests a unique experience they will not easily forget and would willingly share with other travelers they meet on the road.
Some friends of mine own a popular hostel here in Panama City called Luna’s Castle. The owners are major art enthusiasts, so their hostel has taken the form of an interesting gallery, and their exterior has a European feel to it, matching the surrounding old-town’s colonial architecture. They also have a trendy bar connected to their hostel, offering their young travelers affordable drinks and a fun social scene. They also boast an indoor movie theater, as well as guest computer areas, and lounge areas. They catapulted to the forefront in the hostel market here and are by far the most sought-out hostel destination for budget travelers through Central America…largely because they have created a whole experience for their guests.
One of the great things about running a hostel is that you can intertwine many revenue streams into your business. You should take this opportunity to also organize tours for your guests—have that service available. You should also have a bar for your guests (an outsiders as well), as another way to make money. You may also decide to offer in-house language lessons (for whichever country you may be in).
In the end, setting up and running a hostel can be a lot of fun. However, a hostel business needs to make money as well. In order for a hostel to succeed financially, you need a large number of guests (high occupancy rates) and you need to be creative in finding additional revenue streams. This way you can enjoy doing a fun job and make a living at the same time.
Costs And Pricing
After you find your location, plan your concept, and how you will set up your space you can start to price. How many dorm beds do you want in how many rooms? How many private rooms do you want to offer? Say you have 50 bunk beds available at US$10 each per night, and 4 private rooms (sleeping 2 people per room) available at US$30 per night. On a booked night (with 58 people) you are looking at US$620 per night made on bed rentals.
Let’s look at your expenditures:
- Free breakfast for guests
- Guest coffee
- Employee salaries
- Maid’s salary
- Cleaning supplies
- Hostel supplies
- Business taxes
If you are fully booked during high-season, these expenses will be easily paid, but the trick is to responsibly set yourself up to be prepared for the money inflow to slow down with the low-season that most locations do, at one time or another, experience.
So, what should you be charging in order to be competitive in the market while covering your costs, and still making a profit?
Thoroughly knowing your market should be your first step. The reality is that your customer-base will be young (18-27 years old) and on a tight budget. Your hostel will probably be one stop among many for your customers as well, even more the reason their budget is crucial.
Knowing this, you can plan the structure of your business. What are you going to offer to the young traveler? What is their spending power? Probably not much…
Hostels in Panama, for example, typically offer a free pancake breakfast, US$10-US$12 bunk beds in a dormitory, and US$20-US$30 private rooms. Those hostels with bars offer steeply discounted happy hour prices: national beers for US$1; tequila shots US$1; shooters US$3. This is a surefire way to catch your audience’s attention—catering to their price range and their desire for a fun time amidst their travels.
Planning your start-up costs will involve planning your structure first.
How many dorm beds do you want to have and how many private rooms?
How many bathrooms do you have to share among these rooms?
What will you need to make each day to cover the daily costs of the above mentioned expenditures?
Additional revenue streams will help ease any burden during low season, for you will still have money coming in from your tours or whatever your additional businesses may be. They may experience a slow-down in customers, but at least you will continue making revenue to cover your hostel operational costs and see some sort of profit.
Bring It All Together…What Do You Need?
A local attorney: Different locations within various countries have differing jurisdictions, so you will want a local attorney to ensure you are privy with all local guidelines for running a hostel there.
Purchase or rent a space: Plan how many guests you want to accommodate and choose a spot that will sufficiently and comfortably fit this amount. Remember to take your monthly payments, be it rent or mortgage, into account, and make sure you are covered with your landlord in your leases- and that it is clear the type of business/ businesses you will be running there.
Beds: The ease of purchasing beds for your hostels will depend on where you are. In some areas of the world it may prove a better deal to have someone locally make your beds. You can give them the measurements and they can produce the beds for you (typically use a wood frame if you take this route). Importing several beds to remote locations is more costly and the logistics involved may give you a royal headache. Don’t forget to include bedding as well (sheets and pillows).
Kitchen ware: You will likely provide a communal kitchen for your guests, so you will want to offer cooking utensils and cooking ware for them to use.
Lounge areas: You want to provide your guests with space to relax, read, or hang out with friends and people they meet. You should have an outside area, as well as an inside lounge area. You should also have an area people can set up their computers. Maybe even offer public computers for your guest’s use.
Staff: The good thing about running a hostel is that you have a constant influx of individuals willing to work to stay in a location for an extended period of time. You can likely get away with trading work for a lower wage if room and board is included for your employees. You will also need a maid service every day.
Supplies: Find bulk suppliers of goods to stock up on inventory. Buy bulk dish soap, laundry detergent, toilet paper, paper towels, and ingredients for your breakfast special (be that eggs, pancake mix, or what have you). Likewise for any supplies for any subsequent businesses you open within your hostel. You will have a lot of people there all the time, so you may as well spring for the bulk items in order to save money and the hassle of having to make constant small orders. Also have a first aid kit on hand.
Promotion: Now this is an important one. How are you going to market your business? You want a great website and you want to have a positive image on TripAdvisor. Also, make sure that at every transport hub near and far, there is information posted on your hostel for travelers to see. Word of mouth is a main source of publicity along travelers on a travel circuit, so guests who have a good experience will likely talk you up along the trail. Give your guests passing through some marketing supplies as well to take with them to their next destination.