Royalty fees are often the first number hotel owners compare, but they are only one part of a franchise’s total cost.
The key question is “what will the full franchise relationship cost?”
Look Beyond Royalty and Marketing Fees
Beyond royalty, marketing, and initial fees, franchises may charge separately for related programs and services.
Depending on the system, separate charges may include:
- Loyalty, reservation, GDS, and third-party distribution.
- Technology, PMS connectivity, and per-reservation charges.
- Training, meetings, required services, and added marketing.
The issue is not whether these fees are good or bad, but what they are, how they’re calculated, and how they affect your bottom line.
Fixed Fee or Percentage?
Ask whether each fee is based on revenue, rooms, or reservations.
Percentage fees rise with revenue, per-reservation fees with bookings, and per-room fees with property size.
How a fee changes with your business matters: Percentage fees rise with revenue, while fixed per-room fees do not.
Ask:
What will I pay per reservation, room, and month beyond the primary franchise fees?
Don’t Forget the Bigger Costs
Some major costs are not franchise fees. Property improvements can require substantial investment when joining, renewing, or changing brands.
Clarify what is required, when it is due, and the likely investment.
7 Questions Worth Asking
Before signing or renewing, ask:
1. Which fees are based on room revenue?
2. Which fees are fixed or room based?
3. Are there reservation and distribution charges?
4. Is loyalty included or charged separately?
5. Are technology, connectivity, or required program fees separate?
6. Which fees can change during the term?
7. What is the total monthly cost beyond royalty and marketing fees?
Compare the Whole Relationship
Do not judge a franchise by royalty percentage alone. Consider the total relationship cost: recurring and reservation fees, technology, loyalty, support, required services, and property investments.
The goal is not the lowest fee, but to know what you pay and what you receive.
It’s the total cost of doing business.