It’s that time of the year where HVS releases its comprehensive brand franchise fee guide.  Franchise fees vary greatly by brand but generally fall into these categories:

• Initial fee
• Royalty fee
• Marketing fee
• Reservation fee
• Frequent Traveler Program fee
• Miscellaneous fee

These fees for our purposes were factored into a general percentage of revenue and do not include hotel management services.  If a franchise fee is 10% then for every $100 in room rate, $10 would be going to the brand.  Our team was surprised when two “fauxtique” brands made the most expensive list.

The most expensive brands are:

Hampton Inn – 14.7%
Hilton Garden Inn – 14.5%
Holiday Inn Express – 14.4%
Westin – 14.2%
aloft – 13.7%
Travelodge – 13.5%
element – 13.3%
Hilton Hotels – 13.3%
Hotel Indigo – 13.2%
Marriott – 13.1%

The least expensive brands on the list are mostly economy hotels but still the least expensive on the list are Best Western, America’s Best Value Inn, etc. and are typically around 7% on the low end.

Hotel Product and Franchise Fees

*Source HVS

Extended stay hotels averaged much lower franchise fees than that of full and limited service hotels.   The above graphic shows the number of brands that are below the median franchise fee of 11.3%.  While there were some brands, like the element, that were above, most fall below.

Franchise Fees of Branded Boutique Hotels

Not all boutique hotel brands were covered within this guide, especially that of mixed management company/brands like that of Kimpton and Joie de Vivre. Also missing were soft brands not considered franchises like Preferred Hotel Group and Leading Hotels of the World.

aloft – 13.7%
element – 13.3%
Hotel Indigo – 13.2%
Luxury Collection 11.3%
Marriott Autograph 10.8%
Ascend 7.7%

Should you brand your hotel?

There are many reasons to brand your hotel project including financing.  While credit has loosened as boutique hotels have proven successful, sometimes markets have yet to demonstrate success for boutique hotels and financing can be more difficult.  While calculating your project’s pro-forma, it is important to take these franchise fees and do your math to see if the brand is capable of adding revenue to improve profitability or if a brand does not make sense.

While some costs cannot be avoided, generally the royalty fees and loyalty fees coupled with more efficient marketing initiatives can reduce fees by 7%.  Will the brand add more than 7% of revenue per available room?  For perspective, if an independent hotel can attain a revenue per available room of $225 in a given market, the brand would need to add $15.75 in either rate, occupancy or in cost savings.

More information

For more information on cost breakdowns and to read the study, take a look below at the article.  Cost breakdowns are available for each of the categories (Initial fee, Royalty fee, Marketing fee, Reservation fee, Frequent Traveler Program fee and Miscellaneous fee) along with more analysis.

Thinking about jumping ship from your brand?  Can your project be more profitable as an independent hotel?  Contact us so we can discuss your hotel.

HVS | HVS – 2014 United States Hotel Franchise Fee Guide by Stephen Rushmore and Erin Bagley