Hotel Franchising: Is it the Right Path for Your Business?

Franchise or Independent? Making the Best Choice for Your Hotel

Starting a hotel brings many challenges, from establishing service standards to driving bookings. For many hotel owners, joining a well-known franchise like Ramada or Best Western eases some of these challenges. In fact, only a third of U.S. hotels are independently owned—brands dominate the market with their proven models and operational support.

What is a Hotel Franchise?
A hotel franchise involves a contract where the franchisee (hotel owner) operates under a known brand’s name, using its systems, reputation, and marketing support in exchange for fees. The brand provides guidelines on how the property should operate, ensuring consistency across its portfolio. The agreement details everything from branding and marketing to operational standards and guest experience, but it can also come with restrictions on creativity and autonomy.

How Does a Franchise Work?
Becoming a franchisee involves selecting a brand that aligns with your property’s goals. After applying and meeting the brand’s requirements, hotel owners enter into a franchise agreement. This agreement typically includes initial fees, royalty payments, marketing contributions, and adherence to the franchisor’s operational systems. Hotel staff will receive brand training, ensuring compliance with the franchisor’s standards.

Key Franchise Costs
Franchisees face multiple fees, including initial franchise fees, royalty fees based on revenue, and marketing contributions. There are also costs for loyalty programs, renovations, and legal compliance. These costs vary depending on the hotel segment:

• Economy: 8.6%
• Midscale: 11.6%
• Upper Midscale: 12.1%
• Upscale: 11.4%
• First Class: 12.4%

Pros of Franchising

• Brand recognition: A well-established brand can draw in guests, boosting occupancy rates.
• Proven systems: Franchisees benefit from operational systems that have been perfected across many locations, reducing risk.
• Support: Franchisors provide operational guidance, training, and technology systems.
• Loyalty programs: Popular hotel chains have loyalty programs, offering incentives to returning guests.

Cons of Franchising

• Costs: Franchise fees can be steep, cutting into profitability.
• Control: Owners have less creative freedom, with strict guidelines on branding and guest services.
• Shared Reputation: The performance of other hotels in the franchise can affect your property’s reputation.
• Long-term Commitments: Franchise agreements often span decades, with costly compliance obligations.

Exploring Franchise Options: What to Consider
Before deciding to affiliate with a hotel brand, there are several key activities to undertake:

1. Research thoroughly: Speak with current franchisees to gauge satisfaction.
2. Assess brand alignment: Ensure the brand matches your property’s vision.
3. Review performance: Understand the expected revenue and growth trajectory.
4. Seek professional advice: Consult industry experts and legal professionals to understand the agreement in full.
5. Evaluate technology: Ensure the franchisor’s technology is modern and efficient for your needs.

Popular Hotel Franchises
If you’re considering franchising, here are some popular options, along with their estimated fees:

1. Best Western: Initial fee of $46,000 + $200 per room, royalty fee of $1.44/room/day
2. Crowne Plaza: Initial fee of $75,000 or $500/room, royalty fee of 5%
3. Fairfield by Marriott: Initial fee of $50,000, royalty fee of 5.5%
4. Four Points by Sheraton: Initial fee of $60,000, royalty fee of 4.5%
5. Hampton by Hilton: Initial fee of $75,000, royalty fee of 4%
6. Holiday Inn Express: Initial fee of $50,000, royalty fee of 6%
7. Hyatt: Initial fee of $100,000, royalty fee of 5%
8. Motel 6: Initial fee of $25,000, royalty fee of 5%

These are just a few of the many hotel franchises available. Each offers a different balance of cost, reputation, and operational support, allowing hotel owners to find the best match for their property’s needs.

Independent Options
For those seeking more autonomy, “soft brands” or independent hotel collections like Preferred Hotels & Resorts or Marriott’s Autograph Collection offer another route. These allow hotels to maintain a unique identity while benefiting from brand affiliation.

Conclusion
Choosing whether to join a franchise or remain independent is a significant decision for hotel owners. While franchising offers brand recognition, operational support, and a proven model, it also comes with costs and restrictions. Carefully consider the pros and cons, explore your options, and ensure any agreement aligns with your property’s long-term goals.