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🏨 Opening and running a small hotel

Why the booking channel matters more than the room rate, and what a second property really costs.

What the market is worth

US hotels & motels: $286.5B2025 market size; RevPAR forecast +3.0% for 2026 (CoStar / Tourism Economics)
Properties competing: 45,9232026, up 0.7% on the year — a fragmented trade with no dominant independent
US occupancy: 62.8%2026 forecast, up from 62.3%. The average room is empty more than a third of the year
OTA commission: 15–25%per booking; the effective rate is several points higher after promos and cancellations
A direct booking costs: 4–5%all-in, once you have a booking engine — payment processing plus basic marketing
OTA share for independents: ~63%of bookings. This is the single largest controllable cost in the business
Labour: 34.4%of revenue industry-wide (2024) — the largest line, and it does not scale down easily

How it actually grows

Before you openThe building decides most of your ceiling

Room count, location and parking set the maximum revenue you can ever earn, and no amount of operating skill moves them afterwards. Work out the realistic annual room-nights (rooms × 365 × the occupancy your market actually runs, not the one you hope for) and multiply by an achievable rate before you sign anything.

Watch out: Modelling on peak-season rates. Your January occupancy is what determines whether you survive, and it is roughly half your August.

Year 1Pay the OTA tax, on purpose

You will open with almost all bookings coming through Booking.com and Expedia, and that is correct — they have the audience and you have none. Treat the commission as a customer-acquisition cost for a business with no other way to be found. Get the reviews up; nothing else matters this year.

Watch out: Discounting to fill rooms. Rate is very hard to raise once the OTAs have learned what you'll accept.

Year 2–3Take back the direct channel

This is where the money is, and it does not show up as revenue growth. Moving ten points of bookings from an OTA to your own site changes nothing on the top line and drops roughly 13–15 points of that revenue straight to profit. A booking engine, a rate-parity-compliant "book direct" offer, and an email list of past guests are the whole toolkit.

Watch out: Expecting the OTAs to stay at their old share quietly. Direct share is won a point or two a year, not in a quarter.

Second propertyOnly once the first one runs without you

A second property doubles the fixed overhead and less than doubles the revenue for at least eighteen months while it ramps and builds its own reviews. It works when the first property has a manager who doesn't call you, and when the two can share a booking engine, a brand and a back office.

Watch out: Judging the new property on the old one's numbers. A ramping hotel should be well below the mature one — falling short of it is not failure, it's month four.

What each revenue stream is good for

Revenue stream	Pays	Scales
Rooms — directThe same room night, worth 13–15% more than an OTA booking. Every point you shift is permanent.	Highest margin	Excellent
Rooms — OTAReal demand you could not otherwise reach. Necessary early; expensive to stay dependent on.	15–25% commission	Good
Rooms — corporate & groupNegotiated below rack, but it fills midweek and shoulder season, which is where independents bleed.	Lower rate, higher certainty	Good
Food & beverageRarely profitable on its own at this size. Justify it as something that raises the room rate and the review score, not as a business.	Thin margin	Medium
Events & meetingsWeddings and corporate days use space you already own on days you can't fill. Often the best return on an empty function room.	High per booking	Medium
AncillaryParking, late checkout, pets, breakfast upgrades. Small individually, and among the few things you can add without hiring.	Almost pure margin	Medium
Long-stay contractsCrews, relocations, insurance placements. Unglamorous, low-servicing, and it flattens the January trough.	Discounted	Good

If you're starting this month

Work out your break-even occupancy before anything else — the point where rooms revenue covers fixed costs. Every decision for the next year is measured against it.
Install a booking engine on day one, even if nobody uses it yet. You cannot take back the direct channel later without one.
Capture the email address of every guest who stays, whatever channel booked them. That list is the only asset the OTAs can't take.
Set up rate parity deliberately: match the OTA price, then compete on things the OTA can't show — free breakfast, late checkout, room choice.
Track RevPAR (rooms revenue ÷ all available room-nights), not occupancy. A full hotel at a bad rate and a half-empty one at a good rate look identical on an occupancy report.

Before you trade on any of this

Lodging is one of the more heavily regulated trades here and almost all of it is local: an occupancy or lodging-house permit, a transient occupancy / bed tax you collect and remit (often monthly), fire and life-safety inspection, ADA accessibility requirements that apply to both the building and your website, and separate food-service and liquor licenses if you serve. Several cities also cap or license short-term lodging in ways that reach small hotels. Employment rules bite earlier than owners expect, because housekeeping is usually the first place a small property gets its staffing classification wrong. Check with your city before you sign a lease, not after.

Run this against real numbers → The same handbook inside the tool, on a worked example you can swap for your own spreadsheet. Free, no account.

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Figures are sourced from published industry research (IBISWorld, trade associations and regulator data) and are stated with their year. They describe typical conditions, not your situation. This is general information for business owners, not financial, tax, or legal advice.