Hello everyone! I hope you are doing well! I would like to write about franchises at hotels today. I have seen many hotels which change from hotels to famous brands hotels like Westin and Hilton. In fact, In 2019, there were 773,603 franchise establishments in the US. This shows that there are many franchise hotels.
What is Franchise?
A franchise is a type of business where a business owner (the franchisor) shares their brand products, services, and business plan with a third-party (the franchisee) so the franchisee can open their own branch of the franchise. The franchisee pays a franchise fee to the franchisor to use their brand and receive support in operating their business.
What is Franchise at a Hotel?
It is basically as similar as a normal franchise but costs more. To enter into a hotel franchise, the franchisee will be required to agree to and sign a franchise agreement, which will lay out the entire process, cost, and operating system that you and the franchisor must follow. In addition to the franchise agreement, the franchisee will pay the franchisor initial and ongoing franchise fees. These franchise fees will include the initial investment and other smaller fees that cover marketing, brand compliance, and quality control. For this price, the franchisor provides you with the brand and operations manual. In some cases, the franchisor also offers on-call support and oversight of the business.
How does Fee Work?
Conceptual business and finance image of large group of American one hundred dollar bills
The initial fee typically takes the form of a minimum dollar amount based on a hotel’s room count.
The Continuiting Cost
fees for franchise affiliation and are paid monthly over the term of the agreement. Continuing costs generally include a royalty fee, an advertising or marketing contribution fee, and a reservation fee. In addition, continuing fees may include a frequent traveler program and other miscellaneous fees.
Royalty Fee: compensation for the use of the brand’s trade name, service marks and associated logos, goodwill, and other franchise services. Royalty fees represent a major source of revenue for a franchisor.
Advertising or marketing contribution fee: Brandwide advertising and marketing consist of national or regional advertising in various types of media, the development and distribution of a brand directory, and marketing geared toward specific groups and segments.
Reservation Fee: If the franchise brand has a reservation system, the reservation fee supports the cost of operating the central office, telephones, computers, and reservation personnel. The reservation fee contains all distribution-related fees, including fees payable to third parties, such as travel agents and distributors.
How Do We Calculate Continuiting Cost?
In general, royalty fees are calculated based on a percentage of rooms revenue. In some cases, reservation fees are based on a combination of a percentage of rooms revenue and/or a dollar amount per available room per month, which depends on the source of booking, per reservation.
Pros and Cons of a Franchise at a Hotel
Pros: Because the hotel already has a good reputation and recognition, it is less risky than other hotels.
It is easier to get advice because there are many hotels which have same brands
A hotel does not have to have a business plan since it already exists
Cons: It always comes with a high cost
A hotel has less flexibility
How much is Franchise at a Hotel?
Hilton: The franchise fee for this hotel franchise is $75,000. And the total upfront investment ranges from $29,162,700 to $111,963,150.
Wyndham: The fee for Wyndham brand franchises is $150,500. And the initial investment ranges from $42,112,580 to $69,188,897.
Marriott:The franchise fee for Marriott resorts is $120,000. And the startup investment for new resorts range from $74,129,490 to $117,209,490.
Hyatt: The franchise fee for new hotels ranges from $60,000 to $100,000. And the initial investment ranges from $13,645,000 to $153,723,000.
Sheraton:The fee for new franchises ranges from $85,000 to $150,000. And startup investment ranges from $53,521,090 to $82,627,590.
Hampton by Hilton: The fee for new Hampton by Hilton franchises is $75,000. And upfront costs range from $7,662,800 to $14,821,500.
Holiday Inn: The franchise fee is $50,000. And the total initial investment ranges from $7,544,298 to $24,836,120.
The fee for a new Days Inn hotel franchise is $36,000. And the total initial investment ranges from $292,634 to $8,281,441.