Running a Hotel requires significant fixed overhead combined with high variable costs tied to occupancy Expect initial monthly running costs in 2026 to exceed $148,000, covering fixed operational expenses, payroll, and variable costs like commissions and supplies Based on 2026 projections, your total fixed overhead (including property taxes, insurance, and base utilities) is $36,500 per month, plus $67,500 in base payroll before taxes This high fixed cost base means achieving the projected 550% occupancy rate is critical for reaching the January 2026 breakeven date This guide details the seven core monthly expenses you must track to maintain cash flow and hit the projected $376 million EBITDA in the first year
7 Operational Expenses to Run Hotel
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Operating Expense
Expense Category
Description
Min Monthly Amount
Max Monthly Amount
1
Staff Payroll
Personnel
The 2026 base salary expense for 18 FTEs (including GM, Front Desk, and Housekeeping) is $67,500 monthly, excluding the 15%–25% burden for taxes and benefits; this cost is defintely fixed.
$67,500
$84,375
2
Property Taxes/Ins.
Fixed Overhead
These non-negotiable fixed costs total $13,000 monthly, comprising $8,000 for Property Taxes and $5,000 for Property Insurance.
$13,000
$13,000
3
Utilities/Maint.
Operations
Base Utilities are fixed at $10,000 monthly, plus a $3,000 General Maintenance Contract, totaling $13,000 before usage spikes.
$13,000
$13,000
4
OTA Commissions
Variable Cost
This variable cost is projected at 80% of room revenue, representing an outflow that scales directly with third-party bookings.
$0
$0
5
Supplies
Variable/Fixed Supplies
Housekeeping Supplies run at 15% of room revenue, while Office Supplies add a fixed $500 monthly; projected total is $7,175.
$500
$7,175
6
F&B/Spa COGS
COGS
Cost of Goods Sold for ancillary revenue streams is variable, estimated at 70% for F&B sales and 10% for Spa Services, totaling $1,820 in 2026.
$0
$1,820
7
Tech/Marketing
Fixed Overhead
Fixed technology costs include the $2,500 monthly PMS Software License, plus a $4,000 monthly Marketing Brand Spend, totaling $6,500.
$6,500
$6,500
Total
All Operating Expenses
$100,500
$125,870
What is the minimum cash buffer required to cover fixed operating costs for the first six months?
You need a minimum cash buffer of $219,000 to cover the first six months of fixed operating costs for your Hotel before revenue stabilizes, a key consideration when reviewing benchmarks like How Much Does The Owner Of A Hotel Business Typically Make?
Six-Month Cash Requirement
Total fixed overhead is set at $36,500 monthly.
Multiply this by six months to establish the required runway.
This reserve covers rent, salaries, and utilities before stabilization.
It’s essential to defintely hold this amount before opening doors.
Stability Levers to Hit
Target 50% occupied room-nights by the end of Month 3.
Ancillary revenue (bar, spa, parking) must contribute 25% of total sales.
Keep variable costs for food and beverage below 35% of F&B revenue.
If the event space booking cycle runs longer than 45 days, cash burn increases.
Which cost categories are most sensitive to changes in occupancy and average daily rate (ADR)?
The costs most sensitive to occupancy and Average Daily Rate (ADR) fluctuations are those directly tied to selling a room night, meaning they are highly variable. For the Hotel, this sensitivity is extreme because transaction fees and supplies account for nearly all room revenue costs; if you're thinking about scaling, Have You Considered The Best Location To Open Your Hotel?
Transactional Cost Levers
OTA Commissions are 80% of gross room revenue.
Every occupied room night triggers this fee, making it perfectly variable.
If ADR increases by $20, the commission expense also increases by 80% of that $20.
To improve margin, you must shift bookings to your own direct channel.
Supplies and Operational Scaling
Housekeeping Supplies cost 15% of room revenue.
This expense scales almost perfectly with the number of room nights sold.
If occupancy drops from 90% to 60%, these supply costs drop by 33%.
Fixed costs, like property taxes or general manager salary, don't move with occupancy.
How will we manage the payroll burden if the projected 550% occupancy rate is not met in the first year?
If the Hotel doesn't hit its aggressive 550% occupancy target in Year 1, the $67,500 base monthly payroll becomes an immediate cash drain, so scaling back staffing is non-negotiable. We need to treat that fixed cost as highly flexible until revenue stabilizes, which is a major challenge in hospitality; honestly, you should review whether the industry is currently generating consistent profits by reading Is The Hotel Business Currently Generating Consistent Profits?. We’ll need to immediately define the absolute minimum staffing required to operate safely and keep the lights on, defintely before Q3 starts.
Define Minimum Viable Team
Identify the core roles needed for 24/7 front desk coverage.
Freeze all hiring planned for the 18 FTEs target for 2026.
Determine the lowest safe staffing level for maintenance and security.
Postpone hiring for ancillary roles like dedicated event coordinators.
Shift Fixed to Variable
Outsource all housekeeping services immediately using per-room contracts.
Use on-call contractors for spa staffing instead of salaried specialists.
Convert any non-essential administrative support to a fractional remote service.
This cuts the $67,500 base cost by replacing salaried workers with usage fees.
What is the true cost of ancillary services (F&B, Spa) after accounting for COGS and dedicated staff wages?
The F&B service likely offers a slim margin due to its 70% COGS, while the Spa has strong gross potential at only 10% COGS; however, dedicated staff wages are the key factor determining if either service truly adds profitable contribution to the Hotel.
F&B Margin Reality Check
Food and Beverage COGS is fixed at 70% of revenue.
This leaves only a 30% gross margin before accounting for kitchen staff and service labor.
If your dedicated F&B wages run at 25% of revenue, the contribution margin shrinks fast.
You need high volume and strict inventory controls to make this a meaningful profit center.
Spa Contribution Potential
The Spa’s 10% COGS suggests a massive 90% gross margin potential.
Therapist labor, often paid via commission, must be modeled carefully against utilization.
If therapist pay is 50% of service revenue, your contribution is still healthy at 40%.
Ensure Spa revenue covers its dedicated staff fully before it starts boosting the Hotel’s core profit.
Key Takeaways
The hotel's high fixed cost base, totaling $104,000 monthly from payroll and overhead, necessitates achieving a 55% occupancy rate to reach the January 2026 breakeven point.
Total projected monthly running costs are expected to exceed $148,000, driven primarily by the $67,500 base payroll expense.
A minimum working capital reserve of $709,000 is projected as a critical cash need by February 2026 to sustain operations before revenue fully covers expenses.
Variable costs are highly sensitive to sales volume, with Online Travel Agent (OTA) commissions projected to consume 80% of room revenue.
Running Cost 1
: Staff Payroll and Benefits
Payroll Baseline
Your 2026 payroll baseline for 18 full-time employees (FTEs) is $67,500 monthly in base salaries. This figure excludes the required employer burden, which typically adds 15% to 25% more for taxes and benefits. So, your true monthly cash outlay for staff will likely range between $77,625 and $84,375. That’s a big difference to budget for.
Staff Cost Inputs
This $67,500 monthly cost covers 18 FTEs, including the General Manager, Front Desk staff, and Housekeeping teams needed for 2026 operations. To estimate this, you multiply the agreed-upon base pay for each role by the number of staff planned. What this estimate hides is the actual allocation across roles; the GM pay defintely skews this average.
18 FTEs total headcount
Roles: GM, Front Desk, Housekeeping
Base cost: $67,500/month
Managing Burden Costs
The 15% to 25% burden is where you find hidden savings or unexpected liabilities. Negotiate health insurance rates early by bundling coverage options for your 18 employees. Be precise about classifying workers; misclassifying an employee as an independent contractor results in severe penalties later. A lower burden rate means more cash flow today.
Bundle health plans for volume discounts
Verify all worker classifications
Benchmark burden against local hospitality norms
Burden Calculation Check
Always budget using the high end of the burden estimate, 25%, until you secure firm quotes from benefits providers. If you use $67,500 as your base, adding 25% means you must reserve $16,875 monthly just for payroll taxes and benefits compliance. This is a non-negotiable cash flow requirement for your hotel plan.
Running Cost 2
: Property Taxes and Insurance
Fixed Overhead Hit
Property taxes and insurance are bedrock fixed costs hitting your budget immediately. These non-negotiable expenses total $13,000 monthly, split between $8,000 for taxes and $5,000 for insurance. This cost applies whether you have one guest or full occupancy, so it must be covered by your minimum revenue base.
Cost Breakdown
These figures represent statutory obligations and risk transfer costs. Property taxes are based on the assessed value of the hotel asset, set by local government. Insurance requires quotes covering liability, property damage, and business interruption for the full asset value. This $13k is pure overhead.
Taxes: Based on asset valuation.
Insurance: Based on replacement cost.
Fixed at $13,000 monthly.
Managing Fixed Risk
You can't eliminate these costs, but you can optimize the insurance portion. Focus on securing multi-year policies or increasing deductibles to lower the immediate premium, though this shifts risk. Avoid over-insuring assets you don't own outright. Taxes are harder to move, but reassessment appeals are possible.
Shop insurance quotes annually.
Review asset valuation for taxes.
Don't let coverage lapse; that's defintely risky.
Break-Even Anchor
Because these costs are fixed and unavoidable, they set the absolute floor for your monthly operating expenses before payroll or utilities kick in. Covering the $13,000 baseline is your first financial hurdle every single month before you earn a dollar of profit.
Running Cost 3
: Utilities and Maintenance
Fixed Utility Baseline
Base utilities and maintenance lock in $13,000 monthly overhead for your hotel operations. This figure covers essential services and routine upkeep but ignores usage spikes or major capital repairs that fall outside the standard contract terms.
Utility Cost Components
This $13,000 monthly commitment keeps the hotel running day-to-day. It bundles base utilities, budgeted at $10,000, with a required $3,000 General Maintenance Contract. This cost is fixed overhead, unlike supplies or OTA commissions.
Base utilities cost $10,000 monthly.
Maintenance contract is $3,000 fixed.
Excludes usage spikes or major repairs.
Controlling Usage Costs
Since the $13,000 is mostly fixed, focus on preventing usage spikes that trigger variable charges. The maintenance contract scope should be reviewed to ensure it covers preventative tasks, not just reactive fixes. We defintely need tight controls here.
Audit maintenance contract scope annually.
Implement smart HVAC controls now.
Track utility usage vs. occupancy rate.
Budgeting Caveat
That $13,000 is your absolute floor for this category. If you hit 90% occupancy, expect utility bills to jump significantly above this baseline due to increased laundry and HVAC load. Budget a 20% contingency for unexpected failures.
OTA commissions are a massive cost, set at 80% of room revenue, meaning most money from third-party bookings vanishes immediately. This variable cost scales directly with how much you rely on those external channels for occupancy.
Calculating the Drain
This 80% represents the fee paid to external booking platforms for driving a room night reservation. To calculate the impact, multiply your projected room revenue sourced via OTAs by 0.80. For example, $100k in OTA room revenue costs you $80k in commissions. This cost is pure variable overhead tied only to third-party volume. Defintely track this closely.
Cost is 80% of gross room revenue.
Scales 1:1 with OTA bookings.
Dramatically lowers contribution margin.
Controlling Channel Mix
You must aggressively shift bookings to your direct channel to protect margin. Every booking moved from an OTA to your website saves 80 cents on the dollar. Focus marketing spend on driving direct bookings to reduce reliance on these high-fee partners. If you can get just 20% of bookings direct, the margin impact is huge.
Incentivize direct booking loyalty.
Track Cost Per Acquisition (CPA) by channel.
Negotiate lower rates if volume is high.
Margin Reality Check
Given the 80% outflow, your break-even point calculation must be stress-tested assuming high OTA dependency. If you project 50% of revenue comes via OTAs, your effective contribution margin on that segment is only 20% before fixed costs hit. This high rate means operational efficiency elsewhere won't fix a channel mix problem.
Running Cost 5
: Housekeeping and Operating Supplies
Supplies Cost Structure
Operating supplies cost structure is split between variable housekeeping needs and fixed office overhead. In 2026, these costs total about $7,175, driven mainly by room revenue performance. Housekeeping supplies are the biggest driver here, tying operational efficiency directly to your top line.
Calculating Supplies Spend
This estimate hinges on projected room revenue for 2026. Housekeeping supplies scale directly at 15% of room revenue. Office supplies are a simple fixed cost of $500 per month. To hit $7,175 total, the variable housekeeping portion must account for roughly $6,575 annually.
Variable cost: 15% of room revenue
Fixed cost: $500 monthly for office needs
Total projected 2026 spend: $7,175
Controlling Variable Costs
Managing the 15% variable spend requires strict inventory control for high-use items like linens and cleaning agents. Avoid overstocking, which ties up cash, or understocking, which forces expensive rush orders. Standardize housekeeping carts to reduce waste defintely.
Negotiate bulk pricing for consumables
Audit usage against room occupancy rates
Minimize inventory holding periods
Margin Sensitivity
If your Average Daily Rate (ADR) drops, the 15% housekeeping cost remains a significant drain on contribution margin. Track usage per occupied room night, not just total spend, to ensure efficiency gains keep pace with revenue fluctuations. This variable cost is unforgiving when occupancy dips.
Running Cost 6
: Food, Beverage, and Spa COGS
Ancillary COGS Split
Ancillary Cost of Goods Sold (COGS) varies widely, with Food & Beverage (F&B) consuming 70% of its sales value, while Spa services are much leaner at 10%. This mix results in a combined estimated monthly cost of $1,820 in 2026, so watch your F&B ordering closely.
Calculating Variable Costs
This $1,820 figure is the direct material cost for non-room revenue streams projected for 2026. It requires knowing the expected sales volume for both the bar/restaurant and spa services. The calculation is weighted: 70% of F&B revenue plus 10% of Spa revenue equals the total COGS input. We defintely need sales forecasts here.
F&B COGS is 70% of F&B revenue.
Spa COGS is 10% of Spa revenue.
Total estimated monthly spend is $1,820.
Managing F&B Input Costs
F&B COGS at 70% is high; focus on inventory control to stop spoilage losses, which erode contribution margin fast. For the spa, 10% is good, but watch for overstocking high-cost treatment oils that expire. Negotiate bulk pricing for high-volume consumables now.
Track daily spoilage rates rigorously.
Use dynamic ordering based on occupancy forecasts.
Benchmark F&B COGS against 60% industry standard.
Risk in Ancillary Volume
If projected F&B sales volume is low, this $1,820 estimate might be too low because fixed labor costs for kitchen prep remain. Don't assume low volume means low overhead in this area; labor is a hidden fixed cost here.
Running Cost 7
: Technology and Marketing Fixed Spend
Fixed Tech & Marketing
Your core overhead for essential technology and brand presence totals $6,500 monthly. This figure covers the Property Management System (PMS) license and necessary marketing spend, setting a baseline fixed cost you must cover before profit. This is non-negotiable overhead for launching the hotel operations.
Cost Breakdown
This $6,500 anchors your non-revenue-dependent technology and marketing budget for 2026 projections. The $2,500 PMS Software License is critical for managing reservations and front desk operations. The remaining $4,000 is dedicated Marketing Brand Spend, essential for initial awareness. Still, this is much smaller than payroll.
PMS License: $2,500 per month.
Brand Spend: $4,000 per month.
Total fixed overhead: $6,500.
Spend Optimization
Optimization here means challenging the necessity of the $4,000 Marketing Brand Spend immediately post-launch. Can you defer or reduce this until occupancy hits 50%? For the PMS, check if the vendor offers annual prepayment discounts, potentially saving a few percentage points on the $2,500 license fee. Don't overpay for features you won't use.
Negotiate PMS license terms annually.
Tie brand spend to occupancy milestones.
Audit software use after 90 days.
Overhead Context
Compared to total fixed overhead, the $6,500 tech/marketing is manageable but not trivial. It sits below the $13,000 utilities/maintenance and the $13,000 property taxes/insurance. You must generate enough contribution margin to absorb this $6.5k before hitting overall operational profit, so watch variable costs closely.
