Inside the Hotel Industry: How Hotels Really Make Money (And Why It’s Genius!)

Welcome to the Business of Hospitality!

Ever checked into a hotel and wondered, How does this place actually make money? I mean, besides the overpriced minibar snacks that cost more than my monthly Netflix subscription?

Hotels are one of the oldest and most fascinating business models in the world. Whether it’s a budget-friendly OYO in India, a luxurious Marriott resort, or an Airbnb apartment with questionable furniture choices, the hotel industry is all about turning empty rooms into serious profits.

So, let’s dive into how hotels operate, their business model, and how they make money. And, of course, I’ll sprinkle in some valuable lessons for entrepreneurs along the way.

The Hotel Business Model: How Do Hotels Make Money?

Hotels follow a real estate + service + experience business model. It’s not just about renting rooms; it’s about selling comfort, convenience, and sometimes, exclusivity.

1. Room Revenue (The Obvious One)

The core revenue stream of any hotel is selling rooms. The formula is simple:

• More guests → More occupancy → More revenue.

• Higher demand → Higher prices → More profit.

This is why hotel pricing fluctuates like a stock market—on weekends, holiday seasons, or big events, prices skyrocket. Ever tried booking a hotel during New Year’s Eve? Yeah, you’ll pay a kidney for a basic room.

2. Food & Beverage (Where They Secretly Make a Fortune)

A hotel restaurant isn’t just a convenience—it’s a profit machine.

• Breakfast Buffets – They charge you $20 for what’s essentially bread, eggs, and coffee.

• Minibars – The most overpriced items on the planet. (Who’s paying $6 for a Snickers bar?!)

• Room Service – A simple burger costs double because they put it on a fancy tray.

Some luxury hotels make up to 50% of their revenue from food and beverages alone!

3. Events & Conferences (The Real Money Maker)

Hotels don’t just cater to travelers—they host weddings, corporate events, and conferences.

A ballroom rental for a wedding? $10,000+ easily.

A corporate seminar? Big brands pay thousands.

Hotels love this because it’s high-margin business, and companies don’t mind spending on fancy venues.

4. Upselling & Extra Services (The Hidden Profits)

Hotels are experts in making you spend more than just your room fare.

• Late Check-Out Fees – Want an extra hour? That’ll be $50.

• Spa & Wellness – A simple massage costs as much as a flight ticket.

• Laundry Services – Charging $10 for a single t-shirt wash (you could buy a new one for that price!).

These services boost profit margins because they have low operating costs but high pricing power.

5. Memberships & Loyalty Programs (Because Repeat Customers = Gold)

Big hotel chains like Marriott, Hilton, and Hyatt run loyalty programs where customers earn points and rewards for every stay.

This keeps customers coming back instead of choosing a competitor. Smart, right?

Examples of Different Hotel Business Models

1. Luxury Hotels (High-Price, High-Profit)

Example: The Ritz-Carlton, Four Seasons, Burj Al Arab

• Target: Ultra-rich travellers

• Business Model: Premium pricing + luxury experiences

• Money Makers: Room rates, VIP services, exclusive dining

Luxury hotels make insane profits because they sell status, exclusivity, and top-tier service.

2. Budget Hotels (Low-Price, High-Volume)

Example: OYO, IBIS, Travelodge

• Target: Budget travellers & business professionals

• Business Model: Low pricing, high occupancy

• Money Makers: Maximising room occupancy, cost-efficient services

Budget hotels focus on volume—filling as many rooms as possible while keeping costs low.

3. Business Hotels (Corporate-Focused)

Example: Marriott, Hilton, Radisson

• Target: Business executives, conference attendees

• Business Model: Corporate partnerships & premium services

• Money Makers: Conference hosting, business lounges, high-speed Wi-Fi fees

Business hotels cater to professionals who don’t mind spending company money on convenience.

4. Resort Hotels (Vacation Money Machines)

Example: Club Med, Atlantis, Taj Exotica

• Target: Leisure travellers & honeymooners

• Business Model: Full-service experience, premium pricing

• Money Makers: All-inclusive packages, spa treatments, guided tours

Resorts charge high fees because they provide entertainment, relaxation, and adventure in one package.

5. Airbnb & Boutique Hotels (The Disruptors)

Example: Airbnb, The Moxy, The Hoxton

• Target: Young travellers, digital nomads

• Business Model: Unique experiences, flexible pricing

• Money Makers: Experiences, curated stays, add-ons like tours & activities

Airbnb changed the game by allowing homeowners to compete with hotels. It forced hotels to rethink their strategies and improve services.

Challenges Hotels Face (It’s Not All Sunshine & Room Service)

1. High Operating Costs

Running a hotel is expensive—staff salaries, maintenance, utilities, and real estate costs eat into profits.

2. Seasonality & Demand Fluctuations

Hotels make money in peak seasons but struggle in low seasons. That’s why they have dynamic pricing models.

3. Competition from Airbnb & Alternative Stays

Many travelers now prefer Airbnb for its affordability and unique stays. Hotels had to adjust by offering better services and experiences.

4. Customer Reviews Can Make or Break Them

One bad online review can hurt a hotel’s reputation. That’s why they focus heavily on customer service and experience.

Lessons for Entrepreneurs from the Hotel Industry

1. Sell Experiences, Not Just Products

Hotels don’t just sell rooms—they sell an entire experience. The same applies to any business: People don’t buy products, they buy feelings.

2. Use Dynamic Pricing Strategies

Just like hotels adjust prices based on demand, entrepreneurs should price their products smartly—higher when demand is up, lower when needed.

3. Maximize Customer Loyalty

Loyalty programs keep customers coming back. Entrepreneurs should focus on repeat customers, not just one-time sales.

4. Upsell & Cross-Sell Like a Pro

Hotels make extra money from spa services, late check-outs, and room upgrades. Entrepreneurs can apply this by offering additional services or premium options.