8/9/2019 What Does a Hotel Franchise Cost
1/3
What Does a Hotel Franchise Cost?
CANADIAN LODGING OUTLOOK August 200 !ear"to"Date
The Canadian Lodging Outlook is a joint monthly publicationof
Smith Travel Research and HVS nternational!
Vancouver and Toronto! Canada "
By: Stephen Rushmore, MAI, CHA - HVS International - New
York
The selection o# an a$$ro$riate hotel #ranchise a##iliation
a##ects a $ro$ert%&s a'ilit% to co($ete in the local(ar)et*
generate $ro#its* achie+e a certain i(age or (ar)et orientation an,
'ene#it #ro( re#erral 'usiness-.ecause the success o# a hotel is
$ri(aril% 'ase, on the cash #lo/ it generates* o/ners (ust /eigh
the
'ene#its an, ser+ices o# a national #ranchise a##iliation
against the total cost o# such a co((it(ent-
The cost o# a hotel #ranchise a##iliation is 'ase, on +arious
#ees an, e $enses charge, '% the #ranchisor #orthe use o# the
'ran,&s na(e* logo* i,entit%* i(age* goo, /ill* $roce,ures an,
controls* (ar)eting* an, re#erralan, s1reser+ation s%ste(s-
Franchise #ees nor(all% inclu,e an initial #ee $ai, /ith the
#ranchise a$$lication*
$lus continuing #ees $ai, $erio,icall% throughout the ter( o#
the agree(ent-
The initial #ee t%$icall% ta)es the #or( o# a (ini(u( (onetar%
a(ount 'ase, on a hotel&s roo( count* Fore a($le* in the Unite,
tates the initial #ee (an% 'e a (ini(u( o# U 34 *000 $lus U 3500
$er roo( #oreach roo( o+er 6 0- The initial #ee co+ers the
#ranchisor&s cost o# $rocessing the a$$lication* re+ie/ing
thesite* assessing (ar)et $otential* e+aluating the $lans or e
isting la%out* ins$ecting the $ro$ert% ,uringconstruction* an,
$ro+i,ing ser+ices ,uring the $reo$ening an, con+ersion $hases- The
continuing #ees aret%$icall% $ai, (onthl% o+er the ter( o# the
agree(ent an, inclu,e the #ollo/ing costs-
Royalty #ee" Usuall% 'ase, on a $ercentage o# roo(s re+enue* the
ro%alt% #ee re$resentsco($ensation #or the use o# the 'ran,&s
tra,e na(e* ser+ice (ar)s an, associate, logos*goo, /ill an, other
#ranchise ser+ices-
$dvertising or %arketing Contribution #ee" This #ee co+ers the
cost o# 'ran,/i,ea,+ertising an, (ar)eting $lace, in +arious t%$es
o# (e,ia* the ,e+elo$(ent an, ,istri'utiono# a 'ran, ,irector%* an,
(ar)eting geare, to/ar, s$eci#ic grou$s an, seg(ents-
Reservation #ee" I# the #ranchise 'ran, utili7es reser+ation
s%ste(s* the reser+ation #eesu$$orts the cost o# o$erating an,
$a%ing #or the central o##ice* tele$hone* co($uters an,reser+ation
$ersonnel-
#re&uent Traveler 'rogram" o(e #ranchisors (aintain
incenti+e $rogra(s that re/ar,guests #or #re8uent sta%s9 these
$rogra(s are ,esigne, to encourage lo%alt% to the 'ran,- The
http://www.hotel-online.com/News/PR2005_4th/Oct05_FranchiseCost.html#Novemberhttp://www.hotel-online.com/News/PR2005_4th/Oct05_FranchiseCost.html#Novemberhttp://www.hotel-online.com/News/PR2005_4th/Oct05_FranchiseCost.html#November
8/9/2019 What Does a Hotel Franchise Cost
2/3
cost o# a,(inistrating the $rogra( is #inance, '% a #re8uent
tra+eler assess(ent-
%iscellaneous #ees" De$en,ing on the #ranchise agree(ent* the
#ranchisor (a% $ro+i,e ase$aratel% charge #or a,,itional ser+ices
such as training $rogra(s* tra+el agent
co((issions* glo'al ,istri'ution s%ste( #ees* co($uter har,/are
an, so#t/are an, so#t/are(aintenance-
:erio,icall%* H; International re+ie/s the #ranchise ,ocu(ents
o# or #ranchise hotel co($anies to,eter(ine the +arious #ees the%
are charging their #ranchisees- Three (o,els utili7ing ,i##erent
re+enueassu($tions re$resenting the econo(%* (i,"rate an,
#irst"class hotel 'ran,s $ro+i,e the 'asis #or ,eter(iningthe total
cost o# the a##iliation o+er a 60"%ear hol,ing $erio,-
The ta'le 'elo/ sho/s the results o# the H; #ranchise #ee sur+e%
#or the t/o lo/est an, the t/o highesttotal 60"%ear costs #or each
o# the three class assu($tions- The ta'le 'rea)s out the initial
cost* ro%alt% cost*
reser+ation cost* (ar)eting cost* #re8uent tra+eler cost*
(iscellaneous cost* the 60"%ear cost an, the 6"%earcost as a
$ercentage o# the assu(e, roo(s re+enue ,uring that 60"%ear
ter(-
O'+iousl% the cost o# a hotel #ranchise a##iliation is an
i($ortant consi,eration /hen selecting a #ranchisor-Ho/e+er* other
#actors such as the strength o# the 'ran,* the a'ilit% o# the
reser+ation s%ste( to ,eli+ercusto(ers* the a+aila'ilit% o# other
ser+ices such as a #re8uent tra+eler $rogra( are all critical
#actors that gointo ,e+elo$ing a $rice"+alue relationshi$ necessar%
#or (a)ing the correct ,ecision-
Note :arris @or,an an, u'in a ena o# H; International ,e+elo$e,
the ,ata #or the H; 200 HotelFranchise Fees Anal%sis Gui,e-
Total Cost of a #ranchise $ffiliation Over a ()*year Holding
'eriod
+conomyTotalnitialCost
TotalRoyalty
Cost
TotalReservation
Cost
Total%arketing
Cost
Total#re&uent
Traveler Cost
Total %isc"Cost
Total ()*,rCost
- of TotalRoom
Revenue.u,get Host U 3 *000 U 3B6*2 0 U 362*000 """ """ U 34*=00
U 3=5*6 0 0- .est ;alue Inn *000 =5*000 """ 5 *000 """ 2*400 65
*400 0-=
elect Inn 60*000 5
