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Help with Income & Expenses Estimate

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commander started this discussion 15 years 11 months ago

Hello,

I'm thinking of opening a hostel in Chicago. I've been doing research for about a month or so and anticipate several more months of work before I'd consider opening. I've put together a very preliminary income and expense estimate based on talking with a few hostel managers and investigating my local market:

Monthly Income & Expense Projection
Chicago Hostel

Income:
100 beds @ 60% occupancy @ $10 bed (100 *.6 *10 * 30 days)
=$18,000 Gross Monthly Income

Expenses:
$3500 Rent or Mortgage Payment
$2500 Manager's Salary
$5520 3 FTE (full time employee equivalents) @ $10 / hour
$1000 Electric Bill
$600 Gas Bill
$300 Cable TV / Internet Bill
$1000 Supplies
$500 Advertising
$500 Insurance
$500 Miscelaneous
=$15,920 Gross Monthly Expenses

= $2080 Net monthly profit

I've deliberately tried to be conservative. I expect year-round occupancy to average higher and I think I could get a higher rate than $10/bed. The rent and mortgage payment is accurate for ~5000 square foot (460 square meters) property in my desired area. The 3 FTE employees means any combination of employee hours that total 3 equivalent full time employees (could be 2 part time and 2 full time or whatever).

This is just a very initial estimate to get an idea as to whether I should proceed further. I am not including start-up costs, I am just for now interested to see if this is potentially viable on an ongoing basis once established.

What other expenses am I missing? Any other comments?

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santa klaus

15 years

Thanks for the insight! Right now I've got budgeted 5 FTE employees. (1 full time manager, me and 3 more FTEs) (FTE = Full time equivalents; or any combination of hours that = 40/hours a week) (2 people working 20 hours / week = 1 FTE) FTEs are the standard way of accounting for employee costs here.

I´m fully aware that a small hostel (100 or less beds) is a totally different thing, but anyway: we have about 20 FTE each for our hostels (all around 300 beds).
Management: 2 FTE
Reception: 5-8 FTE (depends on season)
Bartenders: 2-4 FTE (depends on season)
Cleaning: 7 FTE
Maintenance Man: 1 FTE

The $10/hour I have budgeted for non-management staff includes insurance and taxes. I spent some time on this, so an 18 y.o. student who comes in 4 hours a day in the early evenings might effectively earn $8/hour while a full time person with more experience might effectively earn $12/hour... I used the average of $10. (McDonalds pays $6.55/hour; slightly more experienced college students earn $8-12 / hour)

Hint: never, ever compare yourself with McJunk! They are the lousiest employers, even here in Europe. If you manage to assemble an enthusiastic team, they will be fine with a smallish salary for a while, but in the long run they won´t watch you walking away with a good profit and stay enthusiastic anyway. There are some lousy hostels with good staff, but there are no good hostels with lousy staff. Soon enough, they will know how much they contribute to your success and ask for their fair share. Be a nice boss who pays well, because it does pay off! :)

[As you've probably heard, the US does not require paid vacations, health insurance or pensions...health insurance is supposedly changing with Obama, but in any event I hope to provide it to full time staff and offer some vacation pay...but I don't have to]

I´m very optimistic about Obama in general, but I have some strong doubts he will be able to bring substantial changes there. There is a huge powerful lobby who makes a killing with the system as it is.
The same might be said about your insane defense budget, BTW.

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commander

15 years

What's the price difference between the train and an airport shuttle directly to the nightlife hotspot?

Train is $2 each trip. Under the scenario I envisioned, the ideal hostel would be within walking distance of a stop on this train line.

Airport shuttle to the nightlife area is about $12 - $15. If I put a hostel in the nightlife area, they could still take the train from the airport, but then would have to walk about 2 miles or transfer to a bus for another $2. This is somewhat confusing - newcomers would get lost often, while more experienced travellers would have no problem.

Another consideration is that putting a hostel in more of the nightlife area would raise property prices. However, I do agree that having a hostel in this area would be unbeatable and quite memorable for visitors.

Commander

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Josh Hostels

15 years

Train is $2 each trip. Under the scenario I envisioned, the ideal hostel would be within walking distance of a stop on this train line.

Sounds very cheap and convenient...

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Josh Hostels

15 years

I used to list prices on the website in an HTML table without tax and with tax.

Example:

IMAGE(http://www.hostelmanagement.com/forum/attachments/f11/251d1230056084-help-income-expenses-estimate-prices-tax.png)

Backpackers could see the cheap version (to compare with competitors' prices) but still know that $25 was the final price.

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aboriginalhostel

15 years

About $0.10 / kWh.....one dime per kWh

The biggest electricity cost is laundry, 3kWh per machine and run for 12h a day... Depending on the capacity, I guess you'll need at least two washers and two dryers as well (Maytag is an American brand, they do have big capacity machines for reasonable prices). Lights in the rooms won't consume as much, but electric heaters will. Other than that you will have electric devices such as fridge, cooking facilities, TVs, PCs which also consume about 0,5kWh each.

Klaus is right, outsourcing in a busy hostel could be very useful but not for any price. We've tried to make a deal with couple of laundry companies but it wasn't worth the price, even comparing to what it costs if we do it ourselves.

There is a rough example how to calculate if outsourcing laundry is worth or not:

Outsourced price for cleaning of 1 set of duvet cover+pillow cover+linen(+towel if you supply)

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commander

15 years

Many thanks to Aboriginalhostel, Gordo, Hostels and Santa Klaus for kindly sharing so much valuable information and opinion.

I've learned the biggest thing to change from my original rough estimate is the size - either I've got to reduce the number of beds or increase my space substantially.

I've also heard some good information about maintenance, location and staffing which is useful. Santa Klaus, I'd love to need several bartenders but the strict alcohol laws and 21 y.o. drinking age mean I don't want to have a bar, at least not at first. It would be very difficult keeping those under 21 from drinking if they're staying in the hostel.

Please post or contact me directly with any more thoughts. I'm off to visit my family for the holidays soon but I'll post some more numbers when I can make more calculations.

One final thought: I have an opportunity to purchase the equipment from a 60 bed hostel which is losing its lease. Most of the beds, mattresses, linen, etc... are said to be no more than a year or two old. The offer is about half their new retail price. For the moment, start up costs are not my primary concern (monthly operating figures are) but are there any thoughts about buying some used equipment in good shape?

Commander

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commander

15 years

If anyone is interested, this is a property I've looked at a few times now. It is about 12 000 square feet (1100 m2) and rents for a very good rate of $5,000 a month. The neighborhood is nice, there are a few restaurants and bars within walking distance, and the main nightlife area is about 15 minutes by bus. It is an old church!
IMAGE(http://www.loopnet.com/Attachments/5/F/6/5F67281A-0ED5-46EF-932B-428E2D82A0E4.jpg)

This property has several good and bad points. A major point of concern is that the very high ceiling over most of the floor space means I can not create conventional rooms. What do you guys think of using nice room dividers to create individual bedrooms? (see below)

IMAGE(http://www.slidingdoorco.com/products/gallery/office1.jpg)

These type dividers can be made clear, opaque or to look like regular plaster/sheatrock walls and can be fitted with lockable doors. The good thing is that they are relatively cheap, and I could afford to create many private or double rooms without much cost; however they would have an open "roof" (good or bad?) and maybe not be too quiet. Please, any thoughts are appreciated with this idea on how to convert a large open space into smaller bedrooms or smaller dorm rooms....

regards

Commander

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Josh Hostels

15 years

...however they would have an open "roof" (good or bad?) and maybe not be too quiet.

I've stayed at hostels like this and didn't mind it because I can sleep through a lot, but I think some light sleepers might complain -- "I paid for a private room, but it was really just a giant dorm room with some dividers".

There are always the people who come in at 3am and flip the lights on and start having a regular conversation. The couples in the private rooms might occasionally keep up the other guests :)

The building looks interesting though.

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Rucksack Brian

15 years

I have always thought that it would be cool to convert a church into a hostel. I picture stained glass windows with images of Jesus wearing a backpack and a painting of The Last Supper with everyone eating spaghetti or kebabs and drinking cheap beer. Do you think you could get a "Buddy Jesus" statue like in the movie Dogma to set by the front door to welcome your guests? I'd book your hostel just to take my picture with it.

As far as the room dividers go, I have seen this done before at Pacific Tradewinds in San Francisco. It struck me as different, but it didn't bother me at all. In the interest of making guests feel secure I would put lockers in each room, because it would be too easy for someone to stand on a bunkbed and look down on everyone else's vualuables. Entering a locked room would be as easy as jumping from bed to bed over the wall.

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Josh Hostels

15 years

As far as the room dividers go, I have seen this done before at Pacific Tradewinds in San Francisco.

It was the best rated hostel in the USA on Hostelworld in 2007 so that's good evidence that backpackers might not care about room dividers.

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