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  15 Jun 2022

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Understanding the Hostel Business Model

The hostel business is a rapidly growing sector of the hospitality and real estate industry. Whether it is a student hostel or a backpacker's hostel, they all have the same or eerily similar models.

We are going to break down and clearly explain this model from the executive summary to the financial plan and everything else.

What kind of business is a hostel?

To answer the question of what kind of business is a hostel we must first understand what a hostel is.

Wikipedia defines a hostel as “a form of low-cost, short-term shared sociable lodging where guests can rent a bed, usually a bunk bed in a dormitory, with shared use of a lounge and sometimes a kitchen.

A hostel as a business if put in simple terms is a hospitality and real estate business, it focuses on providing affordable communal accommodation while providing minimal services, thereby leveraging profit and reducing operational costs.

Read more: How To Starting Your Hostel Business: Complete Guide

Are hostels a good business model?

Before we answer this question there are so many factors to consider to determine if the hostels are a good business model.

The business model for hostels can be said to be a good one because it typically focuses on maximizing profit while minimizing operational costs.

It does all this while providing shared accommodation/housing at low cost and affordable prices, this proves to not only be an extremely profitable venture but in the proper situation a more successful business than a hotel.

Are hostels a good investment?

The hostel business is an ever-growing industry and even more so over the past 10 years.

Hostels do not require as much investment capital as other real estate ventures, this in its right makes it a low-risk investment.

In this market, its consumers do not require luxury so it makes it cheaper to fund and operate. As a result of the costs of its low investments, profitability is enhanced and the main attraction of real-estate investments is the return.

Hostels are much easier to manage and operate in comparison to other types of properties in the real-estate business because typically hostels are self-serviced. This not only saves investors money but also helps them make more profit.

Read more: How To Manage Your Hostel The Right Way

So to answer the question, yes we believe think that hostels are a good investment because they’re not difficult to maintain and they are profitable.

Hostels vs. hotels business model

When wondering if it is better to run a hostel or a hotel, multiple factors can sway or impact your decision. Factors like your target audience, location, competition, and management experience can all influence the kind of business that would be most profitable to you.

Hostels and hotels differ greatly despite both being in the hospitality business, so it is only natural and plausible that both have different business models.

A hostel offers a low-cost and affordable alternative to housing for a short period of time. Hostels will typically include features like a communal lounge and kitchen area in addition to shared dormitory-style rooms.

The target audience for this aspect of hospitality is usually backpackers and young travelers who are in their late teens up to their mid-thirties. That notwithstanding, in the last 10 years there has been a surge in people of all walks of life preferring to stay at hostels.

Each hostel will typically focus on a niche market, for instance concentrating or working exclusively on social events or private holidays.

It is common knowledge that hostels are a feasible option for travelers, backpackers, and people on a budget who need low-cost accommodation, greater flexibility, ease of convenience, and social encounters with strangers from various walks of life.

On the other hand, hotels provide opulent accommodation with a more exclusive ambiance. Although hotels are more popular and common, Europe and the United States have both seen a significant spike and progressively growing interest in hostels.

As a matter of fact, in the course of the 2007-2008 financial crisis hostels saw notable growth in residency numbers while hotels suffered a drop in residency numbers.

Before venturing into a hotel or hostel business, you should ask yourself if you would rather have the task of filling more expensive beds or moderately priced ones.

Typically hotels offer superior services and are usually more costly to operate, all the while charging lofty room rates. However, on the flip side, hostels are somehow able to keep costs at a minimum by offering their customers a bare-bones experience.

Although a single hotel room will generate more revenue/income, cheaper and affordable hostels are more appealing to a certain kind of traveler. Additionally, with lesser services and amenities, it costs significantly less to operate and maintain a hostel.

Let us not forget that hotels generally hire more staff than hostels and also have more exquisite and pricy furniture and decor.

One of the major differences between a hostel and a hotel is the sharing of accommodation. Hotel room bookings are always on a private basis this ensures that guests can enjoy the company of their friends and companions rather than random strangers.

Although some hostels offer the option of private rooms, shared rooms are invariably an option with this kind of accommodation. This sharing business model enables hostels to maximize the number of paying guests without increasing room inventory.

How do I start a hostel business?

When starting a hostel business, there are a lot of things you must take note of. The first thing to consider when starting a hostel is to consider the location because it affects your budget, your target audience, your strategy, and everything else you need to contemplate.

When starting a hostel business there are so many ways to go about it but we have come up with 5 steps that help guide you.

Pick a location

The first thing to do when starting a hostel business is to decide where you want it to be located, this will aid in your market research and it will help you identify what makes you unique at your chosen location.

Carry out market research and define your unique value proposition

Market research will help you identify available opportunities in the proposed area so that you can find a gap in the market. The market gap is where you will step in with your unique value proposition. It helps define what you can offer because you’ll be able to see clearly what is available and what is missing.

Define your resources

You should identify and define the resources; human resources and equipment alike that you will need in order to run your hostel. It helps you understand your operating costs and make a financial forecast for your hostel.

Business and marketing plan

After defining your resources, it’s time to create a business and marketing plan. The business plan includes a cost analysis and projected costs, while a marketing plan helps identify your target audience and what marketing strategy best suits them.

Start operating

When you’re done picking a location, carrying out your market research, and all the other steps, congratulations it is time to start operating.

How To Write A Hostel Business Plan

Before writing a business plan for a hostel, you must first conduct market research, which entails getting acquainted with the hostel market and substantiating if there’s ample room in the local market to open a hostel in your area of choice.

In conducting a market analysis for your business plan, you’ll acquire crucial knowledge of the present demand for hostel accommodation, including the hostels that are already established on the market.

As a result of this data, you will be able to ascertain what your target audience should be, this will in turn ensure that your hostel can take its spot on the market. After the market research is done (but not before you begin writing your business plan) you should determine the equipment and staff needed to operate your hostel.

After you’re done gathering all the aforementioned data, then you can start writing your business plan

Read more: Tips On How To Write A Great Hostel Business Plan

Why create a business plan for your hostel?

As an entrepreneur, a business plan is an absolute necessity regardless of what kind of business you are about to venture into. This is the first thing to do when starting a new company.

When starting a hostel business, a business plan helps you determine if your hostel has the possibility of being profitable. A business plan plays a vital role in how your business is presented to prospective investors or lenders.

A business plan is made of 2 major parts:

  • A financial forecast that aims to accentuate the predicted/anticipated profitability of the business and the initial financing/funding needed for it.
  • A written part that presents your well-detailed project, team, business strategy, and medium-term objectives.


A hostel business model is structured in such a way that conveniently enables minimizing operational costs while maximizing profit.

It has proven to be an extremely profitable venture, especially with the help of modern technology and tools such as hostel management software that helps you generate revenue and attract more guests.

To learn more about starting your hostel business or growing it to it’d full potential with the latest technology, schedule a call with us today .


  1. How to create a successful business plan for a hostel ”. The Business Plan Shop. Accessed 20 April 2022.
  2. So you want to open a hostel? | BananaDesk Blog ”. Banana Desk, 2019. Accessed 20 April 2022.
  3. Are hostels a good business model? | BananaDesk Blog . Banana Desk, 2019. Accessed 20 April 2022.

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