Sep 17, 2009
Evaluating the Total Cost of a Franchise
This article talks about the importance of not only what the different franchise fees are but also how they are significant in picking a flag for your hotel. The selection of an appropriate franchise affiliation affects a property’s ability to do such things as: compete in the local market, generate profits, achieve a certain image and hopefully, benefit from referral business. The success of a hotel is based largely on the cash flows it generates, therefore the owners and lenders must weigh the benefits of an affiliation against the total cost of such a commitment. When choosing a franchise one of the most important aspects to look at is the structure and amount of the franchise fees. This is because franchise fees are one of the largest operating expenses for hotels. Fees are a form of compensation paid to the franchiser by the franchisee for such things as their logo, brand name, trademarks, and advertising. When affiliating with a brand and opening a new hotel you have to pay up front fees such as the initial fee and the affiliation fee. These are one time charge only fees. But there are other franchise fees that are on going, such as the Royalty Fee, Marketing Fee, Reservation Fee, Frequent Traveler Fee, as well as other miscellaneous fees. Franchise fees are no the only factor that needs to be examined when selecting a brand to affiliate with. Other components that should be looked are the potential reservation output, competition from nearby hotels operating under the same affiliation, quality standard and termination provisions. These other factors can make an expensive franchise highly desirable or an inexpensive franchise undesirable. Affiliating with the the wrong franchise can be a very costly mistake for owners and lenders.
I think that this article is very relevant to the lodging module project and the lodging industry as a whole. One of the assignments with in our project is to pick a hotel flag. As this article shows, picking a franchise to affiliate with is very crucial. It can make or break you depending on which one you choose. When choosing a franchise you need to be aware of all the costs you will be incurring, obviously, since the whole point of opening the hotel is to make a profit! This article reinforces the fact that in our groups we will have to put time and effort into researching the ins and out of franchises and the fees that come with them in order to pick the right one for the market segment we are trying to reach, as well as the area we have chosen to build our property in.
Source: lhonline.com
I think Rebecca made some extremely insightful comments in regards to LH Lodging Hospitality Magazine article titled, "Don't Bite Off More Than You Can Chew...Franchise Fee Costs, How Much Can You Handle?" I thought it was great how she referenced the lodging module hotel group project and the impact of selecting a certain franchise flag in regards to brand affiliation which in turn can provide customer loyalty. Therefore, like Rebecca said, I agree that it is crucial for hotel operators to conduct extensive research and analyze of costs and locations prior to making their selection. Overall, all hotel operators are in business to make a profit, and especially in today's economy, it is pivotal that all costs, including franchisee fees, are able to be met with the ability to turn a profit.
ReplyDelete