Increasingly, hotel industry has witnessed rapid growth in the 21stcentury and as result competition within the industry has also intensified. This competition has been fueled by the preoccupation of service and interviews. Both descriptive and inferential statistics was used in data analysis. The study hypothesis was tested using a combination of tests comprising Pearson’s correlation, Regression analysis (ANOVA) and Chi-square. The study found positive relationships between manager’s perception of service quality and customer expectation that were significant at 0.000. It also found significant relationship between Management’s perception of what the customer expects and service design. The study found that all the extracted sub indicators of the independent variables had a probability test value less than 0.05 (95% confidence level). The study further found out that tangibility (β=.132, p=. 0.203; β=.130, p=.0.137; β=.049, p=.0.641) and assurance β=.042, p=.0.673; β=.006, p=. 0.956; β=.038, p=.0.754; β=.106, p=.0.337) had positive relationships with customer satisfaction but they were not significant. Reliability had one sub indicator with a negative co-efficient ((β=- .198) that was significant (p=.044) while Empathy had one sub indicator with positive co-efficient (β=185) but a negative significance (p=-.030). Responsiveness had one sub indicator that was significant (β=.021, p=.000) effect on customer expectation (β=.217, p=.000), (β=.285, 0.002) and (β=.189, 0.023) respectively while empathy and reliability had no significant effect on customer satisfaction (β=.121, 0.129) and (β=.054, 0.537) respectively. Overall, there were strong associations between the five SERVQUAL dimensions and customer satisfaction. The results of the application of the SERVQUAL model and gap model in Kenyan budget hotel industry indicated that customer expectations varied with customer perceptions and that gaps iservice delivery were evident in budget hotels in Kenya. The study concludes that although managers seem to have a reasonably good understanding of the customer, customer perceptions of service delivery still falls short of customer expectations. The study therefore recommends that to enhance customer satisfaction, managers’ need to devise operational and marketing strategies that focuses on all the dimensions of service quality. The study makes some contribution to the body of knowledge as an integrated model in evaluating customer satisfaction.n quality to add value and strengthen the complete guest experience. However, a major challenge facing the sector is the aspect of service quality particularly in budget hotels which target price sensitive customers. These hotels provide the customers with satisfactory core product at a reasonable price but tend to focus more on profits than on customer satisfaction. The services offered are not standardized and service quality variability is a challenge. This study assessed service quality based on the SERVQUAL and Gap model that reflects the difference between Management’s perception of service quality and customer expectations in budget hotels in Nairobi County. It also assessed the gap between customer perception and expectations. The study was carried out in Nairobi, Central Business District (CBD) and its environs. The specific objectives of the study were to identify customer expectations, establish hotel managers’ perceptions of service quality in relation to customer expectations and assess variations between managements’ perception of service quality and service designs that they develop. The study adopted a cross sectional survey design and was conducted in 50 budget hotels. A sample size of 334 drawn from the hotel managers, customers and employees were involved in this study. Systematic random sampling technique was used to select the study sample for customers and employees. Data were collected through use of questionnaires