Are you keen to relive fond, hazy memories of your travelling days spent hopping between hostels?
Or perhaps you want to provide a space where different people can mix and discover a new city together? Either way, you’ve decided to find out how to open a hostel.
It’s exciting, but you’re not sure you’re quite ready yet. There are several actions to take to ensure your dream can become a reality, and we’re here to help lead you down the path.
In this nine-step guide, we will review all the questions around how to open a hostel, including how to conduct market research, come up with a concept and create a marketing and business plan - which includes mastering the ever-important art of number-crunching.
1. Researching the market before opening a hostel
The very first step in any business venture, whether it be a corner shop, cafe or hostel, is to verify whether it’s commercially viable to open the business up within your proposed location.
To assess this, you will need to:
- Get to know your potential customers by reviewing their behaviours, interests and needs
- Familiarise yourself with hot new trends in the hostel market
- Check out the other hostel businesses close by and figure out what you have to offer customers that they don’t
The UK hostel market
The UK hostel market is developing fast. Accounting for 70% of all international travellers - millennials (aged 18 - 35) have officially caught the travel bug.
With 70% of all hostel users falling within this age bracket, it’s hardly surprising that the UK hostel industry has witnessed a boom. In 2018 alone, 305 million young people travelled to the UK to study, work and travel.
The market is therefore growing, driven by a skyrocketing in demand and a low count of just 226 hostels within England.
Despite trumping its population by almost 10 million, England’s ability to offer accommodation to young travellers lags significantly behind Spain, which has over double the amount.
And with more hostel travellers keen to set off the beaten track, it’s not just London they’re chasing - as regions such as Brighton and Cornwall are becoming increasingly coveted.
It’s likely, therefore, that the hostel market will only grow larger. Whether it’s in London or further afield, there’s room for large and smaller, independent hostels alike.
General hostel market: trends and projections
Hostels, once seen as a grungy spot for backpackers, are now disrupting the global travel accommodation market. Keen to monetize off the growing number of travellers prioritising a casual atmosphere over luxury, investment groups have invested massively in hostels.
Generator, a hostel chain with 5,200 beds across 12 locations in Europe, was bought over by Queensgate Investments for $450 million in 2017 with the intention to expand it even further - highlighting the growing demand for hostels amongst today’s travellers.
2. Open your hostel with the right concept
Now that we've looked at the market research, the next stage in our how to open a hostel guide is to consider your hostel concept.
The first stage here is to set your target market: does it include young groups of friends looking to soak up the nightlife or travellers wanting to immerse themselves within the local culture?
Sure, the typical youth hostel guest may not be expecting silver-spoon service and luxury spa treatments, but they’re still seeking accommodation that can offer them something that Airbnb can’t - the chance to mingle with like-minded individuals from all over the world.
Consider this when building a concept for your hostel. Your guests will want to experience the local culture, so are you in a position to offer activities such as sending them on a city tour, or even offer them discounts in restaurants to discover the regional food?
If your guests are social, surely a communal area where they can mingle and hosting social events such as pub crawls will be imperative.
Once you’ve settled on your concept, it is then time to look into the type of hostel you would like to open: is it going to be independent or part of an existing chain?
The UK hostel market isn’t a stranger to chains, with brands such as Generator, Safestay and Meineinger growing significantly in popularity amongst young travellers in recent years.
There’s a ton of advantages of being affiliated with a chain. Firstly, the group already has an established reputation and presence on social media and booking platforms - meaning you’re likely to pique consumer interest from the get-go.
As well as this, there will be standard operating procedures and resources to help you hire and train staff, as well as sourcing suppliers.
With increasingly more travellers keen to travel off the beaten track, however, the allure of smaller, independent hostels cannot be understated. In fact, a 2017 study by Expedia found the unique details and personalised service of boutique hotels the main driving force behind why they’ve seen faster revenue growth than their branded counterparts in recent years.
3. Where should you open your hostel?
The location of a hostel is crucial. So the next step in discovering how to open a hostel is deciding where you’d like it to be situated. Its commercial success and occupancy rate depends on it.
Since the target market is predominantly made up of young people who are travelling from place to place, a hostel must be located near public transport links like bus, train and underground stations.
Guests value hostels that can be easily accessible from an airport or a train station, leaving the fuss of an unpleasant journey behind. Make sure you are well connected to the city-centre to meet these criteria.
You also need to pick the right neighbourhood. Whilst being located central and near key sightseeing attractions massively increases the desirability of a hostel, it’s important to steer clear of areas that are too up-market. Not only would the rent be pricey, but the clientele would be put off by the nearby restaurants and bars with prices well above their means.
The area you decide on should be one that offers opportunities for your young customers to have fun in whatever way they choose - whether that means checking out free exhibitions, eating out on a budget or dancing the night away in a club.
4. Understanding the legal structure of a hostel
Now that you’ve decided what and where you want your hostel to be, it’s time to deal with the legal side of things.
Most cities require permits and licences to run a hostel, so you must first check with your local authority and check what regulations there are for opening a hostel. They sometimes vary from one place to another.
Apply for and obtain all the necessary licenses before opening your hostel (and factor the price of these into your start-up costs.)
You also have to consider the legal form of your hostel. The legal form will have an impact on several things including, but not limited to the organisation, the number of partners and the tax regime - so getting them right is important.
Whether you choose to be an unincorporated or incorporated business, your choice will be determined by the specific constraints of your venture and your personal preferences.
5. Identifying the equipment and staff needed for your hostel
Next up in our guide on how to open a hostel is identifying the supplies (and manpower) that will be necessary for the smooth running of your hostel. These items and operational costs will then have to be quantified in the financial forecast for your hostel.
Before opening up the doors of your hostel, you’ll need a lot of help and equipment, including:
- Dormitory furniture and supplies: beds, bedding, lockers and storage space, etc.
- Washroom supplies: toilets, showers, etc.
- Equipment for common rooms: decoration, plants, leisure equipment (foosball tables, pinball machines, computers with Wi-Fi), bar, etc.
- Kitchen equipment: ovens, fridges, microwaves, utensils, household appliances, etc.
- Equipment for reception area: desk, computer stations, printer, pens and paper, card machine, etc.
- Security-related equipment: door with access control, video surveillance cameras, etc.
- Promotional material: signs, website, flyers, etc.
You will need to recruit staff with experience of the hospitality industry, but also with qualities akin to the daily flow of a hostel (e.g. energetic, upbeat and sociable individuals that are happy to report to for duty at 10 am the day after hosting a pub crawl).
If you decide you want to offer food, you’ll need to factor in kitchen staff, as well as one or two people who are familiar with the administrative and commercial management of a hostel.
When addressing your staffing needs, it would be useful to keep a list of all the factors you need to consider, such as the skills required, the cost of training people up and how many hours they’re needed for every week.
6. ...and any additional services needed
You must also consider the ancillary services that are needed to keep your hostel running in tip-top condition.
These will include enlisting an insurer, as well as a chartered accountant to help you keep track of your accounts and the day-to-day management of the hostel (e.g. VAT, payroll management and tax calculations).
You might also want to hire a cleaning company to help with the maintenance of the common areas and rooms, as well as suppliers for food and alcohol.
Whether you’re picking an insurer or a supplier, make sure you ask for quotes and compare prices to obtain the best deal possible.
7. Creating a marketing plan for your hostel
With a whopping 87% of backpackers using electronic means to book their next hostel via the internet and mobile apps, the weight that a strong marketing plan carries is a heavy one.
The backpackers of today have information regarding the price, service and atmosphere of every hostel ready to compare at their fingertips - so having a sufficient online presence is key to attracting new clientele.
Targeted advertising is a good way to introduce yourself as a new player on the market for those interested in what you’re offering. This can be done by appearing on online booking websites such as Booking.com.
It’s important to also create a website that shows everything you have to offer - including photos, customer reviews and information about availability.
You might also want to consider being referenced on Google Maps, as this could help draw in backpackers within the vicinity who are looking for a place to crash at the last minute.
Finally, think about anything that could bring customers your way and potentially turn them into familiar faces - such as offering discounts to nearby bars or a cheap bike rental service.
8. Setting out your hostel's business plan
A business plan is a document with one goal in mind: to convince its reader to invest money in your business. This document will support you in approaching potential investors or banks when looking for funding.
The business plan of a hostel has two main sections:
- A written section aimed at showing how viable your business idea is and what are its strengths
- A financial forecast highlighting the need for financing and the expected profitability of your project
The business plan, therefore, weaves together all of the previous steps, including the market research, the concept of your hostel, choice of location, equipment needs and so on.
If you’ve never done a business plan before, don’t panic, as you can use an online business plan software to help you put it together. Using this solution will give you several benefits, including:
- Being led step by step through the writing process, with instructions and examples given for each part of the plan.
- Answering simple questions and letting our business plan software crunch the numbers for you
- Getting access to ready-made business plan templates
- Creating in the end a professional document, formatted, and ready to be sent to your bank.
If you are interested and looking to give it a shot, you can try our software for free by signing up here.
Even though it looks scary at first glance, creating a financial forecast is an integral part of your business plan. To learn how to develop one, check out our guide.
9. Raising the capital required to open your hostel
Opening a hostel requires significant investment. The sky-high rent prices in tourist-dense cities and the diverse range of equipment needed for set up means that funding needs to be allocated as quickly as possible.
Thankfully, there are multiple ways to get funding to back up the opening of your hostel.
You can begin by dipping into your savings to start building up the company’s equity. If you have a business partner, you can ask them to do the same. And nothing’s stopping you from calling up a friend or family member to join as an investor to help increase the sum.
You could also go to the bank to obtain a business loan. This could help you cover part of the equipment needed to kit out the premises.
Before calling up the bank, make sure your credit history is as strong as possible. You will also need to provide the bank with several financial documents, so try to organise them ahead of time.
You could also think about crowdfunding, a practice whereby funds are raised by different people in modest amounts. It would not only help you raise money for your business but also awareness of your brand.
And that’s that - you officially know how to open a hostel!
We hope this guide has helped you clarify the vision for your hostel so you can now look forward to the different stages involved in turning your idea into a reality.
If you have any questions or queries, feel free to get in touch with us directly.
Also on The Business Plan Shop
- Business plan template for a hostel
- Steps on how to open a pizzeria
- Download our free business plan template
Know someone who would like to know how to open a hostel? Share our guide!