Good Occupancy, Thin Profit: The Hotel and Motel Squeeze
Plenty of hotel and motel owners fill rooms night after night and still watch the profit thin out to almost nothing. The rooms sell. The reviews are fine. The trouble is everything taking a cut between the booking and the bank: the OTA commission, the franchise fee, the brand-mandated renovation, the rate you set too low to stay competitive.
That squeeze is where lodging owners lose, and it isn't a demand problem. After building hotel and motel plans for owners across the country, Dr. Paul Borosky, DBA, MBA sees the same story: a property that's busy enough but bleeding margin through fees, soft pricing, and an over-reliance on booking platforms that keep raising their take.
This is for the owner who's already operating, not the one breaking ground. Five problems drain hotels and motels again and again. Here's how Dr. Paul fixes each one, and how every fix becomes a section of a real hotel or motel business plan.
The commission OTAs like Booking.com and Expedia now take per reservation, up from around 10 percent historically. Online platforms drove 63 percent of independent hotel bookings in 2025.Source: Cloudbeds and industry OTA data, 2025-2026
Key Takeaways
- Hotels and motels lose margin to fees, soft pricing, and platform commissions, not to a lack of guests.
- OTA commissions and deepening platform dependence are a direct hit to your bottom line. Owning more of your bookings is the fix.
- Most owners underprice because they don't adjust rates to demand. Data-driven pricing recovers revenue you already earned.
- Every fix below is a section of your hotel and motel business plan, not paperwork for a bank.
You Fill the Rooms. The Question Is What's Left After Everyone Takes a Cut.
Most lodging owners in trouble can run a clean, full property. What they can't always tell you is their true cost per occupied room after commissions and fees, whether their nightly rate actually matches demand, or how much margin walks out the door to a booking platform every month. Those numbers, not occupancy alone, decide whether a busy property is a profitable one.
The fix is not heads in beds at any cost. It is keeping more of every booking by owning your channels, pricing to the market, and controlling the fees you can.
Five Problems That Drain Hotels and Motels, and How to Fix Them
Problem 1 · Shifting Traveler Preferences1. Track What Travelers Want Before It Costs You Bookings
Guest expectations move fast: mobile check-in, sustainability, work-friendly rooms, experience over amenities. A property that runs the way it did five years ago slowly falls out of step and loses bookings it never sees walk away.
Dr. Paul handles this in the operations plan: build in continual research of industry and traveler trends so the property adapts on purpose, not after the bookings drop. Staying current is an operating discipline, not a guess.
Put a standing trend-review into your operations plan, quarterly, with a real source list. The owners who track traveler preferences adjust before occupancy slips. The ones who don't find out from the empty rooms.
2. Put Every Franchise Fee Into the Model
Franchise royalties, marketing fees, and brand-mandated renovations climb over time, and they can quietly turn a profitable property into a break-even one. Owners who don't model these costs get surprised by them.
Dr. Paul builds them into a customized financial model: annual and periodic franchise fees and compliance costs entered as fixed or variable, depending on your contract, so you see their real drag on margin and can plan for the next mandated upgrade instead of scrambling.
Map every franchise and compliance cost in the financial model the way your contract defines it, fixed or variable. A brand-mandated renovation shouldn't be a surprise. Model it, reserve for it, and know its true effect on your bottom line.
Only about a quarter of hoteliers adjust their room rates daily, even though demand and competitor pricing shift constantly. The rest leave revenue on the table.Source: SiteMinder, 2026
3. Price With Data, Not a Gut Feel
Set the rate too high and rooms sit empty. Set it too low and you fill up while leaving money on every booking. Most owners guess, or set a rate and forget it, in a market where the right price changes by the day.
Dr. Paul puts a pricing engine in the technology section of the plan: use AI and your historical occupancy data to forecast demand and recommend the rate that balances occupancy against revenue. Data-driven pricing captures the revenue that guesswork leaves behind.
Feed your own booking history into a pricing tool and let it forecast demand by date. With only about a quarter of hoteliers pricing daily, dynamic rate-setting is a real edge over the property down the road still using one flat rate.
4. Budget Safety as a Line Item, Not an Afterthought
Security and guest safety protect your guests, your reviews, and your liability exposure. Underfund it and one incident can cost you far more than the equipment ever would have.
Dr. Paul handles this in the start-up and capital cost section: budget properly for safety equipment like exterior lighting and alarm systems, and budget for a security officer on a daily basis if the property needs one. Safety planned and funded up front is cheaper than safety bolted on after a problem.
List exterior lighting, alarms, cameras, and, where needed, daily security staffing as real line items in your capital and operating budget. Adequate safety spend protects guests and your reputation, and lenders expect to see it accounted for.
5. Stop Renting Your Guests From Booking Platforms
Booking.com and Expedia bring guests, but at 15 to 30 percent or more per reservation, and the deeper you depend on them, the more margin you hand over. Leaning on third-party platforms for most of your bookings is the single most expensive habit in lodging.
Dr. Paul fixes this in the marketing plan: shift budget away from over-reliance on OTAs and into channels you own. A strong website with direct booking, Google Ads, and social media advertising win back the guests, and the margin, the platforms are renting to you.
Treat OTA commission as the marketing cost it really is, then move dollars into direct channels. Every booking that comes through your own site instead of a platform keeps 15 to 30 percent more in your pocket. Build the direct-booking push into the marketing plan.
The Plan Is Where Margin Stops Leaking
Each fix on this page plugs a specific leak, and the business plan is what holds the patches in place. Trend research belongs in the operations plan so the property stays current. Franchise and compliance costs belong in the financial model so they never surprise you. Dynamic pricing belongs in the technology section so rates track demand. Safety belongs in the capital budget so it's funded, not improvised. And the direct-booking push belongs in the marketing plan so you stop overpaying for guests. Written together, those sections turn a leaky operation into one that keeps what it earns.
The hotel and motel business plan template gives you the editable plan and an Excel model that handles franchise fees and financial projections out of the box. Want it built with you? Dr. Paul's consulting and business plan writing services handle it one-on-one.
Watch: Hotel & Motel Business Plan Tips From Dr. Paul
Two walkthroughs on building the plan behind the five fixes, from structuring the full plan to running your pro forma financial projections and profit and loss.
How to Write a Hotel or Motel Business Plan
Step by step, from executive summary to funding request. (17 min)
Hotel/Motel Pro Forma Financial Projections
How to edit and customize the hotel and motel financial model template. (8 min)
Full Rooms, Thin Margin? Let's Fix It.
Dr. Paul works directly with hotel and motel owners on pricing, OTA dependence, franchise costs, and a plan that holds up to a lender. No junior consultants. No hand-offs.
Frequently Asked Questions
Why is my hotel full but barely profitable?
Usually fees and pricing. OTA commissions of 15 to 30 percent, climbing franchise and compliance costs, and a nightly rate that doesn't track demand all skim the margin off rooms you're already selling. A busy property with those leaks unaddressed still struggles. Fix the pricing and the channel mix first.
How do I reduce the commissions I pay to Booking.com and Expedia?
Shift toward bookings you own. OTAs take 15 to 30 percent or more per reservation, so every guest who books direct keeps that margin with you. Put budget into a strong booking-enabled website, Google Ads, and social advertising through your marketing plan. The goal isn't to drop the platforms entirely, it's to stop depending on them for most of your bookings.
How should I set my room rates?
With your own data, not a fixed guess. Only about a quarter of hoteliers adjust rates daily, even though demand shifts constantly, so dynamic pricing is a real edge. Feed historical occupancy into an AI-driven pricing tool to forecast demand and recommend the rate that balances occupancy and revenue. That belongs in the technology section of your plan.
How do I account for franchise fees in a hotel business plan?
Model them explicitly. Build royalty fees, marketing fees, and brand-mandated renovation costs into a customized financial model as fixed or variable costs, matching how your franchise contract defines them. That way the next mandated upgrade is planned and reserved for, not a surprise that wipes out a quarter's profit.
Related Guides & Resources
About the Author
Dr. Paul Borosky, DBA, MBA
Dr. Paul Borosky, DBA, MBA is a CEO Partner and business consultant, founder of Quality Business Plan, and creator of Dr. Paul's Organize-Plan-Grow™ Strategy. For over 14 years he has helped hotel, motel, and small business owners turn busy, low-margin operations into profitable, fundable ones through business plan writing, financial modeling, and hands-on consulting. Learn more about Dr. Paul.
Last Updated: 6/2/2026 · Reviewed by Dr. Paul Borosky, DBA, MBA
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