In the current market environment of modest growth in revenue, hotel owners and operators are paying extra attention to their operating expenses. Per the June 2017 edition of CBRE Hotels’ Hotel Horizons, revenue per available room growth in the U.S. is forecast to remain under 3 percent from 2018 through 2021. Therefore, it will be management’s ability to control expenses that will enable profits to grow.
One expense that management has less control over is franchise fees. Most of the fees charged by the franchising companies (brands) are assessed as a percent of a source of revenue. Therefore, owners and operators have mixed emotions when franchise-related costs rise. After all, if you are paying more franchise fees, then it is likely that your property’s revenue is also on the rise.
To assist hotel management and ownership in their assessment of the franchise-related costs they are paying, we have analyzed data from 1,587 U.S. hotels that reported franchise fee payments each year from 2010 through 2016. The data comes from our firm’s annual Trends in the Hotel Industry survey of operating statements from thousands of hotels across the nation. Some of these properties are owned and/or operated by a brand. Others license the brand, but are operated independently, or by a third-party management company.
In our Trends database we capture four different franchise-related fees on a discrete basis. They are:
- Royalty payments
- Marketing assessments
- Reservation fees
- Guest loyalty program fees
For this analysis, the sum of these four components comprise “total franchise fees”. These are the data that we analyze in this article.