Before You Select a Franchise Partner, Do Your Homework and Check the Math.
Steven J. Belmonte, CHA CEO
Friday, 10th February 2017

Steven J. Belmonte at 4Hoteliers.comHenry Ford once said, 'Coming together is a beginning, keeping together is progress; working together is success'; That has never been more true than in today's hotel franchise environment where there are a lot more franchise options for owners.

I have spent about 40 years in this business as a general manager, CEO of one of the nation's top 10 management companies, President and CEO of Ramada, and currently am the owner of a company with two franchise brands and an independent collection.

I even owned a company in the past that dealt with nothing but liquidated damage/termination negotiations for hundreds of franchisees facing a tough reality, so I've seen the good, the bad, and the ugly.

Here is the truth: most of the opposition comes from hotel owners who invest their lifesavings into a hotel and then something happens that hurts their business. I often am bewildered by the rationale and reasons some franchisees use when selecting a franchise partner. I have pretty much heard it all.

"They are a big company so they must be good," "They have a lot of hotels," "The franchise sales guy said he would make sure I was taken care of," and so the list goes on. My suggestion to anyone considering a franchise is do the math! By that I mean look at the total fees involved: royalty, marketing, loyalty club, extra reservation fees, conference fees, etc., etc.

According to HVS, most of the mature franchise companies charge between 12 percent and 14 percent of the gross room revenue all in. If you do the math, that is roughly 35 percent to 40 percent of your net profit being handed over to a franchise company that does not have any ownership in your bricks or mortar.

Technology has changed the playing field. The way guests choose your hotel has changed. There has been an emergence of soft brands with far more franchise-friendly terms and fees. Yet, some offer all the bells and whistles of the big brands.

A soft brand may not be for everyone, but it certainly fills a huge niche for operators who are looking to run their own hotel without being told how to do it, and not being saddled with unreasonable mandates and requests.

Many of these companies have extraordinary effective consumer marketing programs and great reservation systems that can generate substantial revenue for your property -- and at a fraction of what you may have to pay one of the major, mature brands.

Here are some services to look for when choosing your franchise partner.

  1. A powerful reservation system that gives franchisees more outlets to sell rooms and directs the lion's share to its website to avoid an abundance of third-party fees.
  2. A global loyalty program that truly enables guests to earn vouchers redeemable at thousands of hotels across the globe.
  3. Revenue management that places an emphasis on rate strategy, smart positioning, and effectively drives direct bookings.
  4. A free cloud-based property management system if needed.
  5. Preferred OTA agreements that increases franchisee distribution to sites at an exceptional value.
  6. A worldwide sales department that markets each property to garner group business, manages all incoming leads, and works in tandem with hotel marketers and managers to continually place bids.
  7. An effective purchasing network that enables owners to have the same deep buying power and cost savings as the big brands.
  8. A great training program that delivers in-depth online training materials to all employees of the hotel.
  9. A franchise that will custom build you your own vanity website at no charge to drive even more direct bookings.
  10. Finally, a highly experienced technology consultant who can set the technology directive and add new solutions that make sense for each hotel since it is all about technology, technology, technology.

But wait, there is even more.

All of these services could also be available to owners who want to maintain their hotel as an independent. They like operating as an independent but due to the highly competitive market they are finding it increasingly difficult to get noticed. They desperately need the services of a soft-brand.

So what do they do? My advice is to look for a franchise partner that not only has a brand but an independent option available for you that will allow the hotel to remain autonomous while increasing their visibility.

By partnering with a franchise company that offers all the vast benefits of a soft-brand, independent owners can have access to the best resources in the business while at the same time maintaining their independence.

Finally, and I will say it again, DO THE MATH. Calculate what your franchise fees will be over a 10 year period with one brand and then do the same with a completive brand based on your estimated room revenue. The savings could be staggering.

The difference can be anywhere from 4 percent total fees to 14 percent total fees. Work with a franchisor that is willing to be flexible on critical deal terms including rolling windows and flexible PIPs based on your market demand rather than some arbitrary rule book.

2017 is going to be an exciting year for hotel owners. Why? Because today hotel owners have more options available to them than ever before. If you want a lot more for a lot less, it is time to go shopping.

Steven J. Belmonte, CHA, CEO Vimana Franchise Systems, LLC
12830 Jacob Grace Court, Windermere, FL 34786-5711
Email: Steve@VimanaFS.com 
Twitter: @SJBelmonte

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