HVS report: Franchise fees average 11.8 percent of rooms revenue

A new report released by HVS found that the median cost for franchise fees is currently sitting at 11.8 percent of a hotel's room revenue.

The 2014 U.S. Hotel Franchise Fee Guide is an annual survey of fees charged by hotel franchisors, and includes properties in the limited-service, full-service, select-service and extended-stay market segments. Sixty-five hotel brands participated in the 2014 survey, and for the first time this year's guide uses brand-specific performance data to portray expected costs.

“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,” Stephen Rushmore, Jr., president and CEO of HVS, said in the report. “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.”

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The report found that franchise fees for full-service brands were often above the median cost of 11.8 percent a property's room revenue, while extended-stay brands were largely operating below the median. The 10 highest franchise costs represented a mix of chain scales and product types, while the 10 lowest cost franchises consisted mainly of economy hotels. Best Western properties ranked the lowest because they do not charge royalty or marketing fees.

The report also found that most franchise fees paid by hotels are based on rooms revenue and varied widely. Because reservation fees vary by channel, a change in the source of reservations could have a large impact on the ratio of franchise fees as a percentage of rooms revenue. The most productive way to reduce franchise costs in a hotel is the focus on the origins of the property's franchise fees.

The full franchise fees guide from HVS can be obtained here.

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