The Great Decision: Should You Partner with a Hotel Management Company?

Hotel Management Companies: A Deep Dive into Partnership Pros and Cons

Managing a hotel, whether a boutique inn or a large property, can be a multifaceted challenge. As the owner, you face pressures to maintain operational efficiency, enhance guest experiences, ensure regulatory compliance, and keep the business profitable. One of the most significant decisions you will face is whether to hire a hotel management company to help handle these duties.

These companies offer expertise and operational support that can free you to focus on strategic goals. However, the partnership also means ceding some control over your business. Here’s a breakdown of what working with a management company entails, including costs, pros and cons, and key industry players.

What Does a Hotel Management Company Do?

Introduced in the 1960s, hotel management companies emerged as key players in maximizing hotel performance and profitability. They provide professional services to oversee daily operations, allowing the owner to focus on broader business goals. While some hotels bring management firms in from day one, others may choose to outsource management duties after the business is established to improve efficiency and profitability.

Key Responsibilities of a Hotel Management Company:

1. Operational Management: Ensuring smooth day-to-day hotel operations, from housekeeping to guest services.
2. Revenue Optimization: Implementing strategies to maximize pricing, occupancy, and overall profitability.
3. Sales & Marketing: Overseeing campaigns and channels to boost bookings and attract guests.
4. Vendor Management: Handling supplier relationships to ensure cost-effective procurement.
5. Staffing & Training: Recruiting and managing staff to maintain service quality.
6. Technology Integration: Managing systems that enhance guest experience and streamline operations.
7. Compliance: Ensuring the hotel adheres to industry regulations and standards.

Costs of Hiring a Management Company

Partnering with a management company comes at a price, typically structured into two types of fees:

1. Base Fees: These fixed fees are usually a percentage (2% to 6%) of gross operating revenue or a fixed annual amount. They cover everyday operational responsibilities, such as staffing and marketing.
2. Incentive Fees: These performance-based fees motivate management companies to boost hotel profitability, usually ranging from 10% to 20% of operating profit.

Understanding these costs is vital, as they will affect your bottom line.

The Pros and Cons of Working with a Hotel Management Company

Pros:

• Operational Expertise: They bring years of experience, reducing inefficiencies and improving hotel operations.
• Time Savings: By outsourcing day-to-day management, owners can focus on strategic growth.
• Resource Access: These companies often have strong supplier connections, leading to potential cost savings.
• Risk Mitigation: They ensure compliance with legal and regulatory standards, reducing liability.

Cons:

• Costs: Fees for management companies can cut into your profits, especially when factoring in both base and incentive fees.
• Loss of Control: You’ll relinquish control over many operational decisions, which may not align with your vision for the hotel.
• Potential Misalignment: A management company’s focus on short-term gains may conflict with your long-term vision, especially if their incentive fees are tied to revenue growth.

Retaining Control as a Hotel Owner

If you decide to work with a management company, it’s essential to understand what remains in your control:

• Strategic Vision: You retain control over your hotel’s long-term goals, branding, and identity.
• Major Financial Decisions: While the management company oversees budgeting, you approve significant investments and expenditures.
• Property Improvements: Decisions on renovations and capital investments remain your responsibility.
• Staffing Influence: You can review key managerial hires to ensure the team aligns with your values.

Five Reasons to Stay Independent

Some hotel owners may prefer to retain complete control and operate independently. Here are five reasons why this might work for you:

1. Uniqueness: You have a clear vision that could be diluted by standardized management practices.
2. Hands-On Involvement: You enjoy being closely involved in day-to-day operations.
3. Strong In-House Team: You have a team you trust to run the property effectively.
4. Local Expertise: Your hotel relies on community connections that a management company may lack.
5. Technology Advances: Modern hotel management software allows independent owners to manage operations more efficiently.

Leading Hotel Management Companies

If you’re considering a management company, here are some top firms to explore:

1. Aimbridge Hospitality – A leader in third-party hotel management with over 1,500 properties.
2. Hotel Equities – Focuses on equity-building and relationship-driven management.
3. InterContinental Hotels Group (IHG) – Manages hotels while allowing owners to maintain building ownership.
4. HHM (Hersha Hospitality Management) – Trusted by both public and private owners in the U.S. and Canada.
5. Crescent Hotels & Resorts – Known for innovative services and tailored strategies.

These firms offer diverse services to fit various hotel needs, from boutique properties to large, branded hotels.

Making the Decision

Ultimately, deciding whether to partner with a hotel management company comes down to your goals as an owner. If you crave control over the unique aspects of your hotel, you may want to stay independent. However, if you’re ready to focus on expanding your business and prefer a hands-off approach to daily operations, partnering with a management company might be your best option.