Start A Hostel Business | 20 Steps To Succeed


How To Start A Hostel

You don’t need to know every single aspect before starting a hostel. A lot can be learned along the way. Here’s what you need to know to get the key aspects right from the start.

Starting a business can feel overwhelming. So, how do you eat this huge elephant?

The answer is: One bite at a time.

By doing so, you’ll see daily progress and can tick off things on your to-do list more regularly. So, whenever you feel overwhelmed, step back and remind yourself to go step-by-step.

Alrighty, let’s go through the steps of this exciting journey!

#1 Choose Your Location

If you’ve read my article about how to choose your hostel’s location, you already know that “location, location, location” is a myth. What you should be looking for instead is “profitability, profitability, profitability!” – Hence, your location is only one piece of the overall goal.

There are 7 keys for choosing the perfect hostel location:

  • 1) Market & Competition: Is there a real need for another hostel?
  • 2) Attractions: Are there enough awesome things that attract hostel travelers?
  • 3) Transport Links & Property Access: Can travelers easily get to your hostel?
  • 4) Climate: How hard will you get hit by the seasons?
  • 5) Safety: Will your guests feel safe in this area?
  • 6) Knowledge & Language: How well do you know the area and language?
  • 7) Natural Disasters: How common are natural disasters such as flooding, earthquakes, etc.?

For more information, check out my guide about how to choose the best hostel location.

#2 Study Your Local Laws & Regulations

Zoning, permits, regulations, laws, and other rules… by far my favorite topic about hostels…. 😍

Not.

However, to prevent any future issues, it’s vital to know what you are and aren’t allowed to do. Unfortunately, local laws differ from country to country and even from city to city. Hence, I am unable to give you individual tips for your specific locations.

That’s why I recommend you get in contact with the authorities who are in charge as soon as possible:

  • Local zoning commission
  • Fire department
  • Building department
  • Health department
  • Disability department

By far the worst thing you can do is to start a hostel in an area that isn’t zoned for it. There are many stories on the internet where hostels got shut down by regulatory officials AFTER they’ve put months or even years of work into it.

Hence, be smart and know what you need to take care of beforehand.

Local Hostel Laws, Permits & Regulations

#3 Decide Whether To Buy Or Lease A Property

If it’s your very first hostel, I highly recommend leasing a property instead of buying it.

There are several reasons for that:

  • 1) MUCH lower risks
  • 2) Higher likelihood of finding a great location
  • 3) Tax benefits

Your focus should be completely on building a successful business model while keeping your risks as low as possible.

Real estate investments and running a hostel are two completely different businesses. Both require special knowledge and are quite time-consuming.

For further information, have a look at my article on buying vs. leasing a hostel property. It also includes specific tips on how to negotiate the perfect leasing deals.

#4 Choose A Property

Before opting for a specific property, it’s vital to get a “feeling” for the real estate market and its prices. Hence, I advocate you spend at least one month investigating the market and visiting as many properties as possible.

Don’t be the one who falls in love with the very first property.

While it’s good to be picky, at some point you should make a decision. Having visited a minimum of 10 different properties is a good starting point for making a final decision.

#5 Create A Business Plan

If you need funding, there’s no way around a formal written business plan with around 20-30 pages. If that’s the case, you’ll love my hostel business plan template.

Even if you don’t require financial support, I HIGHLY recommend going through the 5 essential steps of a business plan:

  • 1) Industry Analysis: State of the marketplace and current trends.
  • 2) Market Analysis: Target market research and competition analysis.
  • 3) Marketing Plan: Distribution channels, advertising, and pricing strategy.
  • 4) Human Resources: Organizational structure and job responsibilities.
  • 5) Financial Plan: Break-even point and profit-loss calculation for the first 3-5 years.

Especially the financial plan is a crucial part of your planning process. If your hostel isn’t profitable on paper the way you planned it, then stop BEFORE making any costly investments.

For further information, read my article about how to write a business plan for a hostel business.

#6 Decide Upon Your Name

Some might argue that your hostel name isn’t that important. However, your name determines the very first impression a potential guest gets from your hostel. Hence, your marketing plan already begins with your name.

There are 8 rules for choosing a great name:

  • 1) Include “hostel”
  • 2) Evoke positive emotions → e.g. “Happy Hostel”
  • 3) Never include your personal name → e.g. “Kevin’s Hostel”
  • 4) Make sure the “.com” domain is available → e.g. happyhostel.com
  • 5) Never use special characters → e.g. & – # _ @ ’ $
  • 6) Keep it short (max. 19 characters)
  • 7) Check the availability of social media profiles
  • 8) Double-check copyrights and trademarks

For further information, check out my article about how to choose the perfect hostel name.

Need inspiration?

My list of 149 hostel name ideas that are still available in 2020 will help you all.

#7 Register Your Business & Open A Bank Account

Before investing a single penny on your business, make sure you have registered your business and opened a separate business bank account.

This is one of several essential steps of your overall accounting duties. Besides making your purchases with your business credit/debit card, make sure to keep all the receipts.

If you’re new to hostel accounting, I highly recommend you make use of a certified public accountant (CPA).

In my opinion, you can’t be too obsessive with your bookkeeping and accounting duties. An accountant will make sure you’re always on track with the ever-changing tax laws so you can focus on what you can do best: accommodating travelers.

Furthermore, make sure to apply for all necessary permits you need to have in order to operate your hostel. This can take up to several weeks or even months. It’s the early bird that catches the worm.

Register Business Bank Account

#8 Get Quotes For Hostel Insurances

In the eyes of insurance companies, hostels are quite new and complex to insure because of the many unknown risk factors.

As a consequence, most insurance companies do not insure hostels at all. Hence, be prepared to do research for some time to find a proper policy.

An independent insurance broker is your best chance to get your ideal offer in a time-efficient manner. However, make sure you trust the person and listen to your gut when opting for a broker.

Depending on your area, there are typically 3 major insurances you’ll have to take care of:

  • 1) Public Liability Insurance: Covers damages you’re liable for.
    Example: A guest slips your freshly cleaned bathroom tiles.
  • 2) Buildings Insurance: Protects the building, i.e. walls, ceilings, etc. against fire damage, water damage, and some natural catastrophes.
    Example: Your hostel catches fire and burns down.
  • 3) Contents Insurance: Protects everything inside your building, i.e. furnishing, devices, etc. against fire damage, water damage, natural catastrophes, and burglary.

For further information, check out my full guide about hostel insurances.

Hostel Insurance Quote

#9 Plan Your Interior Design

When it comes to your interior design, you should consider the following three factors and in this order:

  • 1) What your guests want
  • 2) What your wallet wants
  • 3) What you want

To meet the first criteria, you inevitably have to get an in-depth understanding of what your guests really desire. If you don’t belong to this group yourself, I highly recommend a thorough target market research.

Don’t just assume you know their needs. You’ll be surprised by how different they are between different age groups.

That said, the most important rooms will be your bedrooms and bathrooms. That’s why I’ve dedicated two hands-on guides on both topics.

In my hostel bedroom guide, you’ll learn:

  • What bunk beds the top 41 hostels worldwide have in use
  • What the most durable mattresses and beddings are
  • How many private rooms and dorms you should choose to have
  • Whether or not dorms are dying

… and more.

In my article about hostel bathrooms, you’ll learn 11 essential tips, including:

  • How many toilets, showers, and sinks you need per guest
  • How to save money by using “quarter bathrooms”
  • Whether to use “en-suite bathrooms” or separated ones

Besides that, you also want to make sure to use the right key entry system for your hostel. Your options are:

The best choice mainly depends on the size of your hostel. For further information, check out my guide about key entry systems for hostels.

Interior Design Plan For Starting A Hostels

#10 Roll Up Your Sleeves

Enough planning.

Now is a good time to quote Nike’s slogan:

Just do it.

Get your hands dirty and turn your dream into a reality. I HIGHLY recommend you’re involved in as many aspects of the initial starting stage as possible.

Now, don’t get me wrong. I’m NOT talking about becoming a micromanager. Since you’ll be the one in the trenches for the first few months, it’s vital to understanding how things work.

It just makes things so much easier and you’ll learn a few handyman skills along the way.

#11 Choose A Property Management Software

Before receiving a single booking, I definitely recommend understanding what a property management system is and how it works.

By using the right software from day one, you’ll make your life MUCH easier. I can’t stress that enough. Now, there are basically 4 pieces of specific software you’ll need in order to master the hostel game:

Most software solutions combine several components of the above. However, some only offer single solutions.

The most commonly used property management software among hostels is Cloudbeds. It comes with the best channel manager for hostels and a commission-free booking engine.

That said, before making a final decision, definitely check out my guide about property management systems for hostels. It’ll give you a quick & practical crash course on all the relevant aspects including specific recommendations.

#12 Set Up Your Hostel Website

My own analysis of roughly 10,000 hostels showed that one out of five hostels doesn’t have a website. [Source]

In my opinion, this is insane – especially in this day and age.

A hostel website is a crucial part to receiving direct bookings WITHOUT paying commissions up to 20% to online travel agencies. And it has NEVER been easier to create your own website. In fact, it doesn’t take longer than 15 minutes to set it up even without any prior experience. No joke.

To combat this issue, I’ve dedicated two entire articles on the topic:

You’ll be surprised by how easy it is to create a professional website. And it’ll keep your wallet happy – that’s for sure.

#14 Sign Up On Online Travel Agencies

Online travel agencies (OTAs) are the single most effective way to receive bookings online. However, there are more than 400 OTAs worldwide. So, which one should you choose?

TheHostelHelper is all about using proven methods instead of reinventing the wheel. Hence, I’ve analyzed the most commonly used OTAs among the top 41 hostels worldwide.

Surprisingly, they only use a total of 18 different OTAs and there is really just a handful of OTAs that all big players use. Check out my analysis to see the full list of online travel agencies.

By using a channel manager, you can easily add all 18 of them since your availability and rates will be automatically synchronized across all your channels.

As a rule of thumb:

The more visible you are, the more bookings you’ll receive.

Lastly, make sure you use stunning pictures that show your hostel in the very best way. Almost no traveler is going to read your description. Hence, the primary 3 factors are:

#15 Decide On Your Policies

When choosing your policies, you’ll inevitably come across the following aspects:

  • Cancellation policy
  • Check-in / check-out time
  • Accommodating Pets
  • Minimum stay / maximum stay
  • Minimum age / maximum age
  • Group policies
  • Smoking vs. non-smoking

If you don’t like dealing with legal stuff, then I have great news for you:

A few weeks ago, I’ve analyzed all the policies of the top 30 hostels worldwide. I turned the results into an in-depth guide with plenty of stats and a FREE template to download.

For further information, check out my guide about hostel policies.

#16 Hire Awesome Staff

You might have heard of the saying: “A hostel is only as good as the people who are working in it.”, and I agree.

Your hostel staff plays a crucial role since they are the face of your hostel and will make a lasting impression on your guests. Unfortunately, between 62-93% of hostel staff quits within 6 months. [Source]

That’s why I dedicated an article on 8 proven tips for hiring great hostel staff that lasts.

However, hiring is only one part of the equation – managing the other.

No worries, my blog about 9 keys to manage and retain hostel staff will help you out. It also includes insights from other hostel owners on how to use work-exchange staff and volunteers.

Furthermore, you’ll learn the most awesome FREE tool to make managing your staff a breeze.

#17 Improve Based On Feedback

Running a business is all about satisfying a demand. Instead of making a market, your job is to adjust to it. Hence, it’s all the more important to stay flexible and concentrate on the things that work.

The key here is to track a few key metrics and take all the feedback you can get – especially online reviews – seriously.

It typically takes up to two years to really understand what the best business model is for your unique hostel. Among engineers, this process is called a PDCA cycle:

  • 1) Plan
  • 2) Do
  • 3) Check
  • 4) Act

It’s called “cycle” because it never ends.

PDCA Cycle - Plan Do Check Act

#18 Focus On Increasing Your Occupancy

The primary goal of any business is profitability. Now, the “easiest way” to get more profitable is to concentrate on your core business: accommodating travelers.

No other business activity in your hostel has such a high revenue potential than increasing your occupancy rate. Full stop.

Your goal should be to exceed the average occupancy rate of your area within 2 years. After all, you don’t want to start a new venture only to be average, right?

Now, there are plenty of ways to increase your occupancy but only a few of them are actually effective. So, how do you separate the wheat from the chaff?

Easy.

Simply download my FREE ebook about 14 ways to increase your hostel’s occupancy rate. All recommendations are evaluated based on three factors:

  • 1) Effectiveness – How big is the impact?
  • 2) Speed – How long will it take to see results?
  • 3) Investment – How much money, energy and time do you have to invest to see results?

This will help you to keep the main thing the main thing.

#19 Add Additional Income Streams

Once your occupancy rate is on a profitable level, it’s time to give special attention to additional income streams and other advanced strategies.

This is the time to explore all the pricing strategies for hostels as well as adding joint ventures with other companies on a win/win basis.

The beauty of this part is that in most cases, all participating parties win:

  • Win for the partnering company
  • Win for your guests
  • Win for you

However, the same principle as with increasing your occupancy applies:

All is not gold that glitters.

Hence, I’ve analyzed the 14 most common ways to make extra money and turned it into a FREE ebook. You can download it here:

#20 Set Up Systems

A hostel is a 24/7/365 business. Hence, it’s absolutely crucial to build systems that can work FOR you instead of having to lie in the trenches all the time.

When saying “systems”, I mean everything that makes you replaceable.

Even if you have no intention to sell your hostel right now, there WILL come a time when you’re either too old or have found a greater passion that you’d like to pursue. When – not if – the time comes, you’ll be glad you followed this advice.

Probably the worst thing you can do is trying to do everything on your own. It’s also the fastest way to burn out. Hence, ask yourself the following question:

  • If you had to leave your hostel in a matter of hours for 6 months to go overseas, would there be anything left to come back to?

 If you get that queasy feeling in your gut while thinking about the answer, you know what you need to work on.

STOP! 🤚

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Kevin

Kevin is the founder of TheHostelHelper and a former German engineer in his late twenties. In the middle of his grad school studies, he started a consulting business and broke several branch records within the first six months… until he finally quit this venture to pursue his passion for hostels. Kevin is known for his super black humor – yet, super black might still be an understatement. He also LOVES dogs and drinks too much coffee. When he’s not obsessing about hostel topics you’re likely to find him at the gym – where the heavy weights are.

16 thoughts on “Start A Hostel Business | 20 Steps To Succeed

  1. Hi Kevin,
    I looked through it and I think you’ve included all the necessary steps.
    The one thing I’d stress a bit more is to do a market and target market research. If you don’t know exactly who you are going to serve, you are doomed to fail.
    Anyway, I like it! And if you need any further reviews, just let me know 🙂
    It was a pleasure to have you in our hostel.
    Cheers Corey

    1. Thank you so much, Corey!
      I really appreciate that you took the time to read through it 🙂
      See you soon,
      – Kevin

  2. I traveled through Australia for the last 2 years and I finally decided to start my own hostel 🙂
    Thanks for all the information you provide for free! I already read two of your ebooks and it’s like I can skip years of painful learning steps by reading what worked and didn’t work for others.
    I really appreciate it.
    I’m not gonna tell my location yet, but once it’s built and established, I’ll come back to you!
    Cheers, Marcus

  3. In my opinion, the most important part is to do a thorough financial calculations. You’ve to know exactly how high your prices have to be for different occupancy rates in order to be profitable. Oh, and whatever you plan for maintenance – double it. And before you choose your location, visit every single hostel in the area and make notes what you like, dislike and how big they are. Not to copy them, but to get a feeling for the local “hostel standard” and how you can differentiate your hostel from others. The reason being, people judge your hostel based on their own expectations with others. Hence, if some people come from another local hostel to you, they HAVE to be surprised by how good yours is. This is what boosts your reviews and as a consequence, your occupancy.

    1. Oh wow. Thanks for sharing, Richard!
      This is gold. I like the part of making a list while traveling about what you like & dislike in other hostels!
      – Kevin

  4. When starting a hostel, I recommend burning all your bridges (i.e. going all-in). When you HAVE TO make it work, it WILL work. The pressure helped me enormously to stay focused even when things didn’t work the way I wanted.

    1. Thanks for your comment, Ethan.
      I read this strategy quite often in business books. However, I’m not sure if I’d recommend this as a universal strategy since some people might have to support their families at the same time.
      – Kevin

  5. Great article! I’ve not much to add or change. IMHO, I’d place the business plan (#5) BEFORE choosing a property (#4). And I agree with Richard: the financial plan is the most important aspect. You gotta know your numbers!

  6. Thank you and all the others for all the helpful information. We are going to open our hostel in March in Chiang Mai (Thailand) and I’m super excited about it. Just one question: We’d like to be able to receive bookings on our website. So far, we only have a contact page. How do we get such a calendar etc. so that visitors can reserve a bed?

    1. Hi Apinya,
      I’m glad to hear that you found the information helpful.
      What you’re looking for is a “booking engine“. It allows your visitors to book a stay directly on your website.
      For more information, simply click the link.
      Hope that helps,
      – Kevin

  7. Hey Kevin,
    first and foremost: Great job! I like it and there’s not much to add in my opinion.
    Anyways, here are some of my thoughts: I’d personally place #19 at the very end and don’t focus on additional income streams in the first 1-2 years of operating the hostel. I think it’s too much of a hassle to do (too) many different things from the very start.
    Regarding #5 (creating a business plan): I think planning is important – no questions asked. However, I’ve seen plenty of people who used the “planning process” as an excuse to never actually start a business… So yes, do the planning, but at some point: Get going!
    I hope that’s helpful.
    Cheers, Danny

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