Do you need a franchise?
(+ 17 popular hotel franchises)

Starting a hotel from scratch comes with a lot of uncertainty. What standards of service and quality will you follow? How will you get the word out? And how will you convince travelers to book your property over all the other options in the area?

Given the complexities, it’s no surprise that many hotel owners decide to affiliate with a well-known brand like Super 8 or Days Inn through a franchise agreement. In fact, in the U.S., only about one-third of hotels are independent – a total of just over 25,000 properties representing about 1.5 million guest rooms, Skift recently reported. 

But is a franchise the best option for your property? To help you decide, here we look at the pros and cons of franchise businesses, provide a breakdown of the expected costs, and share a list of top franchise opportunities. 

How does a franchise work? 

To establish a franchise agreement, the hotel owner starts by researching and choosing a brand that makes a good fit for the property. The owner must then submit an application to the franchisor, providing detailed information about the hotel and its owner or owning company. 

If the hotel meets the franchisor’s criteria, the next step is to sign a franchise agreement and pay the initial investment. Hotel staff will then be required to undergo training on the franchisor’s operational procedures, and the hotel will be required to implement the franchisor’s brand standards and operational systems according to the agreement. 

Thereafter, the owner pays ongoing fees and receives support from the franchisor in the areas outlined in the agreement. 

What’s included in a hotel franchise agreement?

A franchise agreement outlines the terms and conditions governing the relationship between the franchisor and franchisee. Terms may vary by franchisor, but typically include the following elements.

• Franchise disclosure document (FDD) 
• Details about franchise fees 
• Geographical areas where the franchisee can operate 
• Duration of the agreement and options for renewal
• Branding and standards
• Details about training and support
• Details about how the hotel should be operated, including guest services, facilities, and staff training
• Information about brand marketing activities
• Intellectual property rights and use of proprietary materials
• Requirements for property renovations and upgrades
• Financial reporting obligations 
• Additional terms regarding termination, dispute resolution, selling or transferring the franchise, and a non-compete clause

What is the breakdown of hotel franchise costs?

Fees vary by franchisor, but here are some of the common fees franchisees can expect. 

• An initial, upfront fee for franchise rights 
• Royalty fees, typically a percentage of the hotel’s revenue 
• Sales, reservations, and distribution fees
• Marketing and advertising fees for promoting the brand
• Fees for loyalty programs and incentives offered by the brand
• Supplies and equipment required to comply with the brand’s specifications, such as uniforms, linens, and amenities
• Technology and software fees for using the franchisor’s reservation system, property management software, and other technology
• Fees for franchisor services such as inspections and quality assessments 

Additionally, there may be costs associated with renovations, upgrades, and training required to keep the hotel and its staff members in compliance with brand standards, as well as legal, consulting, and miscellaneous fees.

Average franchise fees as a percentage of room revenue, divided by hotel segment, are as follows, according to HVS.

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

Pros and cons of franchising a hotel

When deciding whether to work with a franchisor for your hotel business, here are a few pros and cons to consider.

Pros of franchising.

• Brand recognition. If a hotel brand is well-known and loved, it can generate a lot of bookings. This awareness can also help business owners in receiving loans and support from banks. 
• A proven model. If the franchise is a tried-and-true model that’s been used successfully by hundreds or thousands of properties in the hotel industry, there are fewer unknowns and less risk.
• Operational support. A franchise agreement often comes with an operational manual outlining standard operating procedures (SOPs), and staff receive training on policies, procedures, and guest service.
• Loyalty programs. Big brands often operate popular guest loyalty programs, which may include other brands owned by the company, and the rewards and perks can be a big draw for travelers.

Cons of franchising.

• Costs. Franchise fees can be steep, cutting into hotel profitability. It’s important to carefully review the franchise agreement to ensure you know what to expect and that there are no surprise fees. 
• Loss of control. New franchisees are required to comply with the franchisor’s guidelines related to the brand, physical property, and guest experience, leaving less room for creativity and less flexibility to adapt quickly to travel trends and changing guest preferences. 
• Shared reputation. If other properties within the brand fail to follow the franchisor’s standards of quality and service, it can lead to negative reviews and poor guest ratings, which will affect the hotel’s reputation too. 
• Contractual obligations. Franchise agreements typically last for 15 to 30 years, sometimes with onerous and costly compliance requirements, and termination can be complex and costly. 

5 activities to undertake when exploring franchise options 

In addition to weighing the pros and cons, here are a few more activities to consider before deciding to work with a franchisor.

1. Do your homework. Research franchise brand options and franchise operators thoroughly, including speaking with owners of other properties to see how happy they are with the relationship. 

2. Ensure it’s the right fit. Does the brand align with the style of your property and your aspirations for it, such as the type of guests and market segments you wish to attract and the caliber of service you want to provide (i.e., full vs. limited-service)? 

3. Review performance. Ask for detailed reports of the performance of other properties in the brand, as well as information about what your property can expect regarding revenue generation and future growth. 

4. Get advice. Speak to a franchise consultant with experience in the hospitality industry to solicit an independent opinion of your franchise options and which ones would make the best fit for your property. Ensure the franchise agreement is reviewed by a lawyer before signing it.  

5. Review the technology. Find out what hospitality technology the franchisor uses and whether your property will be required to use the same solutions. Are the systems modern and efficient, or is the company tied to long-term contracts with legacy providers of outdated software?

17 popular franchise opportunities 

There are franchise brands to suit all types of properties, from budget motels to full-service hotels. Here’s a list of 17 popular hotel franchises, in alphabetical order, along with estimated fees provided by Hotel Project Leads. 

1. Best Western Hotels & Resorts

Initial fee: $46,000 + $200 per room for more than 50 hotel rooms

Royalty fee: $1.44 per room per day

2. Crowne Plaza 

Initial fee: $75K or $500/room, whichever is greater

Royalty fee: 5.0%

3. Fairfield by Marriott

Initial fee: $50,000 or $400 per room

Royalty fee: 5.5%

4. Four Points by Sheraton 

Initial fee: $60,000 or $450 per room

Royalty fee: 4.5%

5. Hampton by Hilton

Initial fee: $75,000

Royalty fee: 4.0%

6. Holiday Inn Express

Initial fee: $50,000 or $500 per room, whichever is greater

Royalty fee: 6.0%

7. Home2 Suites by Hilton 

Initial fee: $75,000

Royalty fee: 5.0%

8. Homewood Suites 

Initial fee: $75,000

Royalty fee: 3.5%

9. Hotel Indigo

Initial fee: $60,000 or $500 per room, whichever is greater

Royalty fee: 5.0%

10. Hyatt

Initial fee: $100,000 or $300 per room, whichever is greater

Royalty fee: 5.0%

11. Intercontinental Hotels Group (IHG)

Initial fee: $75,000 or $500 per room, whichever is greater

Royalty fee: 5.0%

12. La Quinta Inns & Suites 

Initial fee: $50,000

Royalty fee: 4.5%

13. Motel 6

Initial fee: $25,000

Royalty fee: 5.0%

14. Red Lion 

Initial fee: $40,000 minimum; $300/room

Royalty fee: 5.0%

15. Residence Inn by Marriott International

Initial fee: $75,000 or $500 per room

Royalty fee: 6.0%

16. Springhill Suites

Initial fee: $50,000 or $400 per room

Royalty fee: 5.5%

17. Staybridge Suites 

Initial fee: $50,000 or $500/room, whichever is greater

Royalty fee: 5.0%

Independent collections

Another option is to join a hotel network or “soft brand” like Preferred Hotels & Resorts, Marriott’s Autograph Collection, or Wyndham Hotels Trademark Collection. These networks have grown in popularity in recent years, according to TravelPulse, in part due to less rigid brand standards, allowing hotels to maintain independence while benefiting from affiliation with a known brand.