Hospitality Financial Leadership – Hotel Franchise/Management Fees & 20 Years is a Long, Long Time
Being a branded or franchised hotel is an expensive endeavor. Especially when you consider the average agreement is 20 years in duration and you're on the hook for the fees outlined in your agreement plus anything else the management company throws at you.
When I say on the hook, I mean they can literally charge you for whatever they want as long as they determine it is in your best interest. This is the basic concept that forms the meat of the management or franchise agreement.
When you consider the cost of the fees there are some terms you will want to get familiar with. Terms that are part of your hotel management agreement or franchise/license agreement. Terms like "standard," "budget," "discretion," "from time to time." These all point to one reality and that's this: Your agreement allows them to charge you for whatever the flavor of the day is, for whatever the new-fangled thing is. For whatever they want.
Let's face it 20 years is a long time, especially in today's fast-paced Internet of all thing's world. The company will tell you that the latest fee for such and such benefits you and they may be right. But look out because for the brand one-size-fits-all. You might not be the one who really needs the latest marketing twist that ends up benefiting other brand members.
But, guess what? You must pay
I spoke with a hotel owner recently who read one of my other articles on this topic. He had just received an invoice for a new feature that his brand had added and guess what. It was for thousands of dollars and he didn't know a thing about it. He had never received any prior warning or any information on the service. He was not even aware of what it was that this service was supposed to accomplish. When he inquired the word was it was a new feature to help search engine optimization that was added a year earlier. This hotel is a bit unique and aren't they all? Its reservations are still largely received by phone. So, did he get a break on the invoice? No.
The invoice was the "catch up." So, not only for the new service that he was not aware of, but the management company was also behind in their billings. When he called, he got the usual mumbo jumbo from the billing department that explained absolutely nothing. He was then asked to speak to the marketing people who told him to contact the revenue management group. All of this is designed not quite by accident to wear you down, to break your annoyance level. And it works.
A 20-year agreement is a big commitment and over the life of it you're going to experience some new surprises and the one thing you can count on is the cost is going up. Never down. Management companies and franchisers constantly need new sources of service revenue especially when your hotel revenues are flat or backwards to the prior year. They also need to stay ahead of their competition and that means new products and features for you at a cost.
I'm not saying they are bad people or they have predatory practices, but you must realize what you are getting into. Namely a long-term agreement that is going to be more costly in the future.
We don't know what's next in the hotel world and how business will change and evolve but one thing is for certain: You will be receiving new items on your monthly corporate invoice from time to time, and you will have to pay for them whether you like it or not. Full stop.
David Lund
The Hotel Financial Coach
+1 415 696 9593
David Lund
