Like most businesses, the current net profit margin (what’s left after all the overhead and salaries are paid) is a little under 5%. Keep in mind that a few years ago, the average net profit margin was -1%
Below is the industry data for 2014, from over 700,000 private hotels.
This can vary by market segment as well:
Hotels take a lot of money to start up and run, and have very high fixed costs
that still have to be paid even when the hotel is empty. The demand for rooms can fluctuate wildly week to week, and by season which means you can lose money for half the year, and try to make it up in the
Thanks for the A2A.
I would say look at Pablo Perez's answer for actual margins, and his thoughts on franchise or independent ownership. A couple of additional thoughts on cost of operation: price of property is going to vary greatly by location, even in the same market area. In my region of the country, the closer you are to an interstate exchange ( such as I-75 & I-70) the higher the property cost, so look at location VERY carefully. In addition pay special attention to tax rates that will apply to doing business and impact payroll. In Ohio, for example, you may have a sales tax that can vary by up to 4% points depending on the municipality your location is in, plus city levied hotel or tourism tax. Besides federal and state income taxes (both on you and employees) you may encounter city based income taxes, school district based income taxes, and county based property tax on the business assets (this is in addition to real estate taxes).
Also a thought on the franchise verses independent possibilities- independent's do have a much lower set of fixed costs, however you give up the bulk purchasing power, the national marketing campaigns, and the payroll and benefit programs that most franchisers can tap into. So to have success you are going to have to have a business relationship with a first class accounting firm (don't try to do it on your own, there are to many traps that can bite you) and an experienced marketing/advertising firm that knows your area and travel market.
Hope this helps.
Great Question.
Obviously a lot of factors go into this. Theres the market, it’s location, Hotel reputation, etc. To specifically answer your question based on Rooms only. A well run Hotel usually has a margin of 75 - 90%. Pease bear in mind that as per Uniform Standards of Accounting, this does not include Utilities, Admin and Sales force payroll, etc. A total Hotels margins (GOP) are usually between 20–50%. This includes all revenues and expenses.
Hi Aisha, there are different profit margins ralated to running hotels. Net margins and gross margins. These will depend greatly on the type of hotel you may be interested in running. In general though, the industry’s average right now ranges from 6% to 14% approximately, depending on the market you are analyzing. The reason why profits may vary greatly depending on your type of hotel is because for instance franchised hotels have to pay loyalties or commissions to the matrix house and that usually represents a high percentage in expenses and is an amount that will be established in the franchise contract. On the other hand, non franchised hotels don´t need to cover expenses related to loyalties, so this may represent an opportunity to increase net profits.
The average profit margin of a hotel is completely dependent on the management of the hotel. One cannot provide an average profit margin since the services being offered at a hotel completely depend on multiple factors and profitability is based upon the strategy undertaken by the hotel’s management individually to obtain their desired profit margins. Bernie Klinder gives a clear and detailed account of the same. Thanks!