How do hotels make money? The truth is that hotels need to have multiple income streams in order to make money besides just booking rooms for customers.
While hotel rooms provide the most direct form of income for the business, other services can supplement this income, especially when there are a large number of hotel vacancies.
Depending on the location and size of a hotel, it may be even more necessary for it to have several diversified income streams.
For hotels that are located in busy cities or tourist locations that remain booked year-round, the need to increase revenue through other sources may be less important to stay afloat than in less busy locations.
Read on to learn about how hotels make money.
How Do Hotels Make Money?
Here are 5 ways in which hotels generate revenue:
- Paying guests
- Restaurants and Room Service
- Convention and Events
- Gift Shops
- Spa Services
Let’s look at each of these revenue sources for a hotel.
#1. Paying guests
In order to make money, a hotel’s primary service is renting rooms to paying guests to spend the night, whether for an overnight stay or for multiple days.
If the hotel offers other services that generate revenue, it is first necessary to have paying guests present to spend their money. This is try for all types of hotels from budget hotels, to boutique hotels to luxury hotels.
Larger hotel chains can offer discounts and free stays for loyal customers, enticing them to return over and over again. Paying guests offer the most direct stream of revenue for a hotel.
#2. Restaurants and Room Service
A hotel with a restaurant that offers room service will most likely make much more money than a hotel without these bonuses.
An in-house restaurant with room service gives relief to weary travelers who are hungry and tired after their journey. These services also encourage guests to purchase alcohol, which is more profitable than food in almost every restaurant.
Including rather than overlooking food services in a hotel, despite the extra staff and money it requires, can mean a major advantage in sales in the long run for a hotel.
#3. Convention and Events
A hotel within proximity to a convention or event center, or better yet attached to one, can mean a guaranteed income stream for the business. Large-scale conventions that last for several days often require their attendees to travel from far away, making the hotel the perfect place to inhabit during the length of their stay.
If a hotel has a ballroom or large event hall, weddings, birthdays, family reunions, and dances can be held there, just to name a few.
#4. Gift Shops
A gift shop is a great source of income for a hotel, given how much people love to spend money on vacation. Offering items specific to the location of the hotel, if it’s located in a tourist area, keeps money otherwise spent outside in-house.
Gift shops can offer anything from knick-knacks to snacks, clothing, newspapers, magazines, and even more expensive items. A gift shop is a great convenience for paying guests who need to buy something small but don’t want to venture to an outside store to buy it.
#5. Spa Services
Usually available at luxury hotels are spa services. These can range from massage to body treatments and facials. Sometimes, a masseuse may even be available to do some of the services in the guest’s room.
Like any spa, luxurious spa products like lotions are available for purchase, increasing the income and revenue stream from these services.
Guests are typically willing to pay top dollar for these convenient in-house services as they are elective.
Conclusion
Hotels need to find multiple revenue streams to make sure they are never over-dependent on a single source of income.
Of course, the primary source of income for hotels comes from paying guests when they book rooms in the hotel.
If the hotel has a restaurant and/or offers room service, this can be a great and profitable addition to its revenue streams. If the hotel is large and located in a large city, it could host conventions and events and charge for these.
These come with the advantage that those attending the convention or event will also stay at the hotel and use its restaurant and other amenities.
Hotels, especially those in touristic areas, sometimes have gift shops and offer services like massages and spas. These can be great income generators in their own right.
