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HVS Publishes the 2014 U.S. Hotel Franchise Fee Guide
HVS, the leading global hospitality consulting and services firm, has just released the 2014 U.S. Hotel Franchise Fee Guide – an annual survey of the fees charged by major hotel franchisors in the limited-service, full-service, select-service and extended-stay market segments in the country. A total of 65 hotel brands participated in the 2014 analysis. This guide enables hotel owners to easily compare the total cost of one hotel franchise with that of another.
In years past, the pertinent data comparing franchise costs was derived by subjecting each brand’s unique fee structure to a uniform set of assumptions regarding performance levels, room count, and other property-specific details. However, this year’s publication exhibits an updated methodology. For the first time, the 2014 guide utilizes brand-specific performance data in order to more accurately portray what sort of costs might realistically be expected.
“Hotel franchise fees are the compensation paid to the franchisors for the use of the chain’s name, logo, identity, image, goodwill, procedures and controls, marketing, and referral and reservation systems,” explains Stephen Rushmore, Jr. President and CEO of HVS. “The selection of an appropriate franchise affiliation affects a property’s ability to compete in the local market, generate profits, and achieve a certain image or market orientation. Since the success of a hotel is based primarily on the cash flow generated, owners and lenders must weigh the benefits of a brand affiliation against the total cost of such a commitment” adds Rushmore, who co-authored the study with HVS New York Senior Associate Erin Bagley.
Key Findings of this study are as listed below:
- Franchise fees for Full-Service brands were mostly above the median franchise cost, while Extended-Stay brands were largely below the median.
- The median franchise cost was 11.8% of rooms’ revenue.
- The 10 highest franchise costs represented a mix of chain scales and product types.
- The 10 lowest cost franchises were primarily economy properties.
- In general, most of the franchise fees paid by a hotel are based on rooms’ revenue and are highly variable. However, since reservation fees vary by channel, a change in the source of reservations may have a significant impact on the ratio of franchise fees as a percentage of rooms’ revenue. Focusing on the origins of one’s hotel reservations is the most productive way to reduce one’s franchise costs.
For more information about the report, please contact:
Senior Associate - Consulting & Valuation
HVS New York
Phone: +1 (516) 248-8828 ext. 236
Phone: +1 (516) 248-8828 ext. 225