How to open a hostel?

Hello! If someone is not in the know, my name is Dmitry Kuzmin. My hobbies are blogging and developing business plans. Yes, this is such a strange hobby. Everyone goes crazy in their own way: collects stamps, watches football, goes hunting. And my hobby is to understand how a business is built, how and how money is earned. But now it’s not about me, but about how you can organize a hostel.

Introduction: on the way to the hostel

I became interested in this business idea when I discovered that at least three of my acquaintances are somehow connected with hostels. It became clear that the topic is broad enough to deal with it closely.

About six months ago, all my knowledge in this area was limited to the series of the same name on STS. This is clearly not enough to understand the intricacies of the business, write a business plan and, ultimately, open a hostel.

I planned to write this article (probably a series of articles) as a diary in which I will record all my actions. The result should be not only a hostel business plan, but also a step-by-step algorithm for its creation.

Work Plan: Hostel Attack Campaign

First you need to outline an action plan, and then proceed to its systematic execution. What will I be doing in the near future?

1. Step 1. Read primary information on the Internet on this topic. This will allow me to understand: what hostels are, the rules for choosing a location, the main problems in organizing this business;
2. Step 2. See what hostels really exist in my city. I will say right away — I will write about Yekaterinburg. Accordingly, I will analyze all the data for Yekaterinburg. This step will allow me to understand: what level of competition exists in this market, prices, extras. services (if any);
3. Step 3. It is necessary to conduct «field research» — call or go around several hostels, «work» as a client. This step will allow me to understand the real situation on the market: the quality of services, to test my guesses about the density of competition, to compare different service offerings;
4. Step 4. Draw up a financial model of this business for the selected territory. At this step, I will be able to calculate how much money you really need to invest in the hostel and how much you can earn on it, I can calculate the break-even point and payback period for this project;
5. Step 5. Formulate your marketing strategy and specific action plan.

That’s all the preparation. It’s time to get down to business.

Step 1. Collection of primary information on the Internet

After studying the information on the Internet, everything turned out to be even more interesting. I realized that opening a hostel is not as easy as it might seem from the very beginning. It all depends on your appetites. Let’s begin with that:

1. It is necessary to sell beds in the hostel every day. For this, sales should not stop even for a minute. In order to achieve a load of 70-80% (which is considered a very good indicator), it is necessary to use dozens of sales channels. At the start, loading at 50% is a good result;
2. In order to select and legalize a room for a hostel, you also need to try. In 2014, GOST was adopted, which specifies all the basic requirements for the organization of premises for a hostel. In the legal version, the premises must be non-residential, meeting the requirements of GOST, passed the inspection of SES and firefighters;
3. Business investments also depend on the scale: at the current stage, I estimate them from 100 to 1500 thousand dollars at one point.

Main types of hostels

There are three types of hostels depending on the scale:

1. Mini hostel. Apartment 2-3-4-room, area from 50 to 120 m2, located in a residential building. The property may have been converted to non-residential property. Most spontaneously organized hostels are of this format. They require a minimum investment of 100 thousand dollars;
2. Average hostel. Non-residential premises from 120 m2, located in a residential building. This business is already more like a hotel, and not like an apartment filled with bunk beds. Investments in the opening of such a hostel will be at least 650 thousand dollars;
3. Business hostel. The area of ​​the premises is from 300 m2, located in a separate building (or at least having a separate entrance). Investments in equipment and repair of such a hostel — from 1 million dollars.

In addition, a hostel in Russia is also understood as a hostel. The difference is that people do not live in a hostel for a long time — 1-5 days. In the hostel people live on a long-term basis.

Preferred hostel locations

It is logical that hostels are located in central locations with good transport accessibility. These are places in:

• city ​​center;
• 10-minute accessibility from the metro station;
• 10-minute accessibility from the bus and railway station;
• near places of interest;
• close proximity to universities

In any case, the location of the hostel should be convenient for people who are not residents of the city. They came here to work, study, see the sights. Accordingly, the hostel should be located so that guests can quickly get to the place of work, study, walks.

Basic requirements for the premises

Requirements for the organization of mini-hotels (or hostels) are described in the relevant GOST, which you can download from this link.

The main requirements are as follows:

1. Let’s start with the fact that in order to open a hostel and conduct commercial activities, the premises must be non-residential. Accordingly, if you are going to open a hostel in an apartment, the premises must be transferred to non-residential. However, in principle, the placement of hostels in apartments (transferred to non-residential stock) is allowed;
2. For 15 people, at least 1 shower and toilet must be equipped;
3. There should be a maximum of 1 bed per 4 m2;
4. The hostel should have a place for meetings and communication of guests;
5. The hostel can be equipped with a place for cooking and eating. This requirement is not necessary if there is a cafe or canteen within walking distance.

In addition, hostels are subject to the requirement of part 4 of article 17 of the Housing Code of the Russian Federation:

• guests should not disturb the peace and living conditions for all citizens of the house where the hostel is located;
• the hostel must comply with sanitary and fire regulations.

Pros and cons of hostel business ideas

Hostel advantages	Cons of the hostel
1. Low threshold of initial investments for entering the project — from 100 to 1500 thousand dollars	1. A lot depends on the location — a mistake in the choice leads to the failure of the project
2. Small cost to maintain the business — the main costs are rent and staff salaries	2. Much depends on the staff — the staff can both increase business sales and drown
3. Large market — the need for «mini-hotels» is great for its low cost	3. It is necessary to be in constant development — you need to constantly keep your finger on the pulse, know where the preferences and wishes of customers are “moving”
4. Growing market — this market is currently in a state of growth	4. It is necessary to be in constant search for customers — the length of stay of guests is 1-5 days, therefore it is necessary to constantly look for new ones
5. The relative ease of doing business is not the production of synthetic resins. Hostel can be opened without special knowledge	5. Great dependence of future sales on feedback from old customers. The main flow of sales goes through the Internet, where people leave reviews. If you accumulate mostly negative reviews, the ratings on the sites and sales will inevitably fall.
	6. Solving problems with neighbors — it is necessary to ensure that neighbors do not feel the additional noise load that hostel guests can create
	7. Solving guest problems — guests may occasionally have problems that need to be resolved by the hostel owner

I got a few more cons than pros. But in the cons, I included points that are quite typical for any business idea.

Read about how to organize hostel sales in  the next article .

You can watch an interesting video that explains what a hostel is in an accessible way.