A Business Blog

What do you need to know to set up a successful hostel business.

In 2002, I spent 9 months traveling through Asia. During those travels, I visited Singapore several times. Singapore is a good hub for travelling in Southeast Asia and many backpackers stop over in Singapore on their way to or from Australia and New Zealand.

At that time, Singapore had plenty of choices for luxury accommodation, but there were almost no choices for budget travellers and backpackers.

This is how I came up with the idea to set-up the a hostel in Singapore. In 2003, I started the Betel Box Hostel in Singapore together with a university friend from Singapore, Tony Tan.

The hostel was and is very popular with travellers.

However,  even if you have a popular hostel, this does not mean it is a business success. I do not define success as „getting rich“, but I do define success as creating a viable business which not only solves a customer need (fun, comfortable and safe budget accommodation), but which also gives a reasonable financial return to the owners of the business.

Many people want to start and run a hostel. It can certainly be a lot of fun to manage a hostel, but it is not so easy to make it work financially.

For those of you who are interested in starting up a hostel business (or a similar small business), this post is for you. I will share with you what I believe are some of the key points that make a hostel both popular and financially successful.

Location, location, location

This is an obvious one. The location of a hostel is a key to its success. However, you have to define what is a “good location” for a hostel. 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 travellers 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 travellers 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.

This is what we did with the Betel Box Hostel. The Betel Box Hostel is located in the Joo Chiat area of Singapore, which is both a residential area as well as a nightlife area. And the area is famous for its quality and variety of local Singaporean cuisine.

To complete the real Singapore experience, the hostel is located in a typical Singaporean shophouse. As the name suggests, a shophouse was designed to be both a shop and a house. The shop is on the ground floor and the shop owner lives on the upper floors.

Basically, any location which has interesting attractions, interesting experiences and good transport connections could be considered a good location for a hostel.

Concept and Experience

In my opinion, travel is all about experiencing new and different things, and sharing those experiences with others.

Therefore, you need 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 travellers they meet on the road.

Our concept for the Betel Box Hostel was to create a comfortable and homely environment in a typical Singapore shophouse in a typical Singapore neighborhood. Our hostel is quite small (the maximum number of guests is 50) and we wanted to offer our guests all the comforts they would also have at home, but with a distinct Asian look.

We have free internet access, plenty of books, a collection of DVDs, a foosball table and a pool table. The walls were decorated with my dad’s travel photographs from around the world and the furniture was typical for Southeast Asia. This way we created a homely feel with an Asian look.

In addition to the hostel environment, Tony created a number of free guest tours. These were hugely popular! The most popular tour is the food walk. Singapore is a melting pot of cultures and it is hugely famous for the variety and quality of its food. They have Chinese cuisine, Malay cuisine, Indian cuisine, Western cuisine, all affordable and great quality – amazing! Just thinking about the food makes me miss Singapore…

The food walk is a tour where Tony takes a group of guests on a tour of the area where the hostel is located and he orders a bunch of different dishes, which everybody shares. This is a great way to sample a number of different local dishes. During the food walk, you will get to try 10 or more different dishes and drinks.

This tour was so popular that we even had guests from other hostels come over to the Betel Box Hostel to ask if they could join the tour.

Initially the tour was free to all, but in the end, we had to make a living as well, so we started to charge a nominal fee for the food walk and people gladly paid the fee. If you product is good, do not be afraid to charge for it (as long as you charge a fair amount)!

This is a review of the food walk on the BBC website

Revenue Streams

After the Betel Box Hostel had been open for some months, a fellow hostel owner from Australia stayed with us in the Betel Box Hostel. Australia is a great hosteling country. There are great hostels in every city and there is something for everybody, whether you are looking for a small intimate hostel or a large party place.

He offered us some great insights into what makes a hostel a business success. You can have lots of happy customers, but if there are no revenues and profits, it means the business is not sustainable.

He explained that his hostel business had two revenue streams; the first reveue stream was accommodation and the other revenue stream was tours. Each of those revenue streams accounted for about 50% of total revenue.

The way it worked was as follows.

He bought a building for the hostel accommodation. He does not make any profit on the accommodation itself, but the revenue from accommodation covers all the hostel costs, including the mortgage payments for the building. After paying the mortgage payments for 30 years or so, he owns the building outright.

The other revenue stream is the commissions he earns from selling third party tours to his guests. In Australia, there are hundreds of tour companies offering scuba diving courses, sailing trips, island safaris, bus tours and much more. A hostel typically earns a 25% commission when it sells a tour or travel package. This revenue is almost pure profit, because all the hostel operating costs have already been paid for with the revenue from the hostel accommodation.

All he had to do is to create a tour desk with all the flyers and with a hostel staff member to answer questions and make reservations on behalf of guests. That is it!

Now, I realize that most countries do not have such an excellent infrastructure in place for budget travellers and hence it will be much harder to generate this additional revenue stream in other countries.

However, you need to be creative and if tours do not exist, then you have to create some yourself.

In Singapore, there were few tours we could sell to our guests. If we wanted to organize tours ourselves, we would need to get a tour operator license. Since the tourism market in Singapore is really not catered to backpackers and budget travellers, we created our own paid tours for our hostel guests and ended up opening our tours to non-guests as well.

Financial Success

Two years after receiving our first guests back in December 2003, I decided to move on from the Betel Box Hostel. The business was too small to afford two ambitious university graduates and it did not make sense for one of us to remain a shareholder while the other was pouring his heart and soul into the business. So, Tony bought my half of the business and he still runs the hostel and the tours to this day.

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.

This post describes some of the key points I picked up setting up and managing the Betel Box Hostel. Of course there are many other points that contribute to the success of a hostel business, but these were some of the key learnings that still stand out for me 5 years after leaving the business.

If you are considering setting up a hostel or a similar venture, hopefully my experiences with the Betel Box Hostel will help you get started! Please feel free to share your experiences running a hostel or other small business using the comment form below. If you have any questions, just post a comment.

Website: Betel Box Hostel