I was recently cooped up on Lagos Island for a few weeks, and after taking a brief survey of areas along the Obalende axis, I came to a startling conclusion. Shortlets & hotels are the second most popular business (second only to fast moving consumer goods). Many residential buildings have even been converted to shortlets in order to meet up with the demand. What was even more surprising was the fact that several of them were frequently booked to capacity. Occupancy rates consistently hover above the 80% mark.
Which brings us to the question: How many rooms are truly enough for your hotel?
Understanding the intricacies of the hospitality industry is very crucial in making a decision. The most important thing is to understand the type of establishment you are planning to set up. Generally speaking, when it comes to classifying hotels according to room count, there are 3 major classes. These are:
- Small hotels: These are hotels with less than 25 guest rooms. Boutique hotels, aparthotels and some luxury hotels & resorts fall within this category.
- Medium hotels: These hotels typically have between 26 – 100 guest rooms. Midscale, upper-midscale hotels and motels fall into this category.
- Large hotels: These hotels have more than 100 guest rooms. Upscale hotels and some luxury hotels fall into this category.
Even if your establishment doesn’t necessarily fall into a category above, there are no hard and fast rules. Finding that sweet spot for the number of rooms depends on various factors such as
i. Location: A hotel situated in a popular tourist destination might need more rooms, compared to a hotel elsewhere.
ii. Room configurations: Understanding your target market will help you know how to configure your rooms. You could have more standard rooms and family rooms, compared to suites or more luxurious rooms.
iii. Seasonal fluctuations: If the maximum number of rooms occupied during the off-season is 20 and the maximum number of rooms occupied during the peak season is 50, it stands to reason that an optimal number of rooms should be more than 20, but closer to 20 than it is to 50.
iv. Operational efficiency: A hotel must ensure that its infrastructure and staffing levels can efficiently manage the available rooms without compromising service quality or guest satisfaction.
A key performance indicator that can help determine the optimal number of rooms is the Gross Operating Profit Per Available Room (GOPPAR). This metric divides the hotel’s gross operating profit by the total number of hotel rooms, providing a measure of profitability that accounts for both revenue and costs.
A comprehensive Hotel Profitability Analysis can guide you through understanding your hotel’s revenues, expenses, and profitability. This requires thorough market research, meticulous planning, and a flexible approach to management/development. For a more detailed analysis tailored to your specific situation, it would be advisable to consult with a hotel management expert.