Some important steps to carry out a correct feasibility study

If there is one thing that we have been able to confirm in these 26 years of experience and presence in the hotel industry, it is the importance of a feasibility study when opening a hotel, resort, hostel or any other type of accommodation.

That is why in this article we explain each step that must be taken to carry out an adequate hotel feasibility study:

Feasibility study: the main steps

Location analysis

Location analysis is the first step taken in a feasibility study when you want to open a hotel or other hotel establishment. In this case, you must consider whether the location you want has a good transportation system and access roads in good condition.

Additionally, you should consider whether the area has proximity to business areas, natural parks, tourist attractions, schools, universities, hospitals, restaurants, bars, shopping centers and airports. All of these are important aspects, because they are the main generators of demand.

Investigate local hotel supply and demand

Finding out about the hotel supply and demand in the town where your establishment will be is the second step in a feasibility study of a hotel project. To do this, you must know data from the main hotel establishments in the area, that is, from direct competition.

Data on supply and demand can be obtained from statistical institutes, tourism agencies, tour operators, online booking platforms and other tourism entities. This information will help you make projections regarding the occupancy percentage and the prices of the services that the hotel will offer.

Calculation of total costs

The third step in a feasibility study is to determine the total investment of the project. This should include the initial costs of the business infrastructure or architecture. In addition, the operating costs to start the hotel must be calculated, these would be: costs of taxes, licenses, insurance; costs of services such as water, electricity, internet; costs of human and technological resources and facility equipment; among others.

Carrying out this calculation will be essential to make projections about the return on investment time and to seek financing if necessary.

Set room prices

Once the location of the hotel, local supply and demand, the establishments with which there will be direct competition and the total costs of the investment have been determined, the price of the services can be established.

The rate of the rooms with their complementary services is established. Projections on the behavior of demand (occupancy levels) during the year must be taken into account. Well, demand changes according to factors such as the seasons of the year.

For example, if we are talking about a hotel on the beach, it is most likely that in summer demand will be high and that should affect pricing.

Make projections on income sources

Analyzing the different sources of income for your hotel is another important step in a hotel feasibility study. In this case, your hotel’s main income will come from stays, the F&B area (food and beverage) and the rental of meeting and event rooms.

Now, with the projections of the annual occupancy percentages that your hotel or resort will have, you can carry out sales projections in the main departments of the establishment.

Return on Investment (ROI) Projections

The last and most important step is to carry out the projections on the return on investment (ROI). To calculate the ROI, several financial performance metrics must be used, such as the IRR “internal rate of return”, the DCF “discounted cash flow”, the NPV “net present value”, among others.

The calculation of this financial indicator will allow you to know how much money you will be investing, if the return on the investment will be good, if you should make modifications to optimize the project and if you have to look for investors to develop it.

Carrying out all these steps in your feasibility study will allow you to present a clear and detailed report. And having clarity about the issue is essential to be sure of carrying out the hotel project.

If you need help developing a hotel project, do not hesitate to contact us, IHCS is a hotel consultancy with more than 215 success stories in hotel projects internationally.