Can hostels make money?

I haven't really seen this question asked, but to me it's one of the most important. I'm planning on investing a lot of cash in starting up a hostel since I've always wanted to do it. But I really want to hear some solid figures from the hostel owners on whether or not they can make some cash doing this. If so, what are their secrets?

Should you sell food? Install a bar? Start your own tour? Get an internet cafe in town?

Also, what's a ballpark figure on how much profit you can look to pull in annual (both low and high). Any comments are appreciated. Thanks guys!

-Matt

You are right, Matt. That is one of the most important questions; and one that needs to be answered before placing even your first brick.

Statistically speaking, it is said that about 80% of start-up businesses fail during the first year of operation. I see no reason why hostels would be different. In order to remain within the 20% of hostels that survive their first year of operation, you have to prepare and plan very well to have a successful operation.

I myself am analyzing the openning of a hostel. Of course, numbers and payback period of investment will vary because different hostels around the world are subject to different investment requirements and competitive conditions. Some hostels are located in very good locations and can charge premium prices. Others are not that lucky and have to charge lower prices.

In my case, I consider my planned hostel to be in the latter case; so, I am restricted in my ability to charge premium prices.

I am planning a 50 bed hostel. I don't want to go into details, but, providing about the same level of amenities as the competition, I would need an average occupancy of around 25 beds (50% occupancy) to break even. I am analyzing my projected costs to see how to lower my expected operation costs; so that I can survive with a lower occupancy. I think it has been said in this forum that if you can go by with 60% average occupancy, you should be OK. My break even point has been calculated based only on income from the beds; no potential income from other sources (for example, income from coin-operated washing and drying machines) was considered.

But everything is on paper at this moment. My 50% occupancy for break even, even though less than the 60% occupancy mentioned above, means that I have to have 25 people every day, on average. That's what worries me the most: will I be able to get those 25 people per day?

From my standpoint, to answer your question, I will answer that YES, you can make some cash doing this. The catch is that you have to get sufficiently high occupancy levels. How high? It all depends on your particular conditions. In general, given the way fixed and variable costs affect the break even point, I would say that smaller hostels need a higher occupancy percentage than bigger hostels. In my case, I need a 50% occupancy. A 200 bed hostel would need maybe a 25% occupancy to break even (I am guessing).