What Is the Difference between Franchise and Management Contract in the Hospitality Industry

For people who are not familiar with the hotel industry, the structure of hotel operations can seem very complex at first glance. Passing by the front door of a hotel, it is difficult to imagine the variety of actors involved in this business. While some hotels are called independent hotels, others rely heavily on the willingness to cooperate between a brand, owner, and/or operator. This article focuses on identifying the different business models that can be used to run a hotel. Overall, however, the management contract allows the owner to enter the hotel industry even with limited experience to run a hotel and enjoy the profit when the business is doing well. However, this comes with the cost of higher operational and market risk, while the hotel brand takes care of all management issues. On the other hand, the franchise agreement grants the owner the right to operate the hotel himself under a brand or flag and to access technological capabilities, distribution and marketing systems in exchange for loyalty fees. This is suitable for hotel owners who already have hotel experience and want to manage their own hotel on a daily basis. Depending on the market segment in which the hotel operates, franchise costs may vary when calculated as a percentage of total room revenue. According to HVS, the average cost of a hotel franchise for a business hotel is 8.6% and increases compared to its market. The cost of high-end hotel franchises is about 11.4%, while the upper and first class categories are about 12.1%, respectively. 12.4% (SHH, 2020). The franchise`s business model is very popular in North America and is increasingly being adopted by hotel groups due to its focus on the lightness of assets.

Although very few legal terms of the franchise agreement are negotiable, if they are addressed when negotiating the term sheet before the committee`s approval by the brand, there are several terms and conditions that owners can negotiate in one way or another. Owners have more influence on economic conditions when they develop the hotel rather than buying a stabilized asset. The terms that count as terms and conditions and can be negotiated are: In the hotel industry, there are a number of key players and stakeholders involved in running a successful hotel. Hotel brands, hotel owners, and asset management companies often work together to create transformations and combinations of operating models to maximize profitability and increase guest satisfaction. The question asked to the hotel owner is: „How to choose between a franchise agreement or a hotel management agreement?” and „Which model is best for your hotel?” This article is intended to give a brief overview and comparison between the two hotel operating models. Hotel franchise agreements To maximize RevPAR (and secure equity investors and financing), owners typically turn to a large hotel brand to „label” their hotel with an appropriate hotel brand. The right flag can significantly increase hotel occupancy and room rates, and increase a hotel`s value by more than 20% to 40% compared to „unmarked” or weaker branding options. The document that formalizes your rights and obligations is the hotel license agreement or franchise agreement.

There are dozens of essential terms in the franchise agreement; However, the vast majority of these terms are non-negotiable. The key to successfully negotiating with a brand is to understand what conditions are open to negotiation in certain situations. The difference between hotel contractors is unreasonably delayed. Legg has different obligations regarding the difference between the hotel in English by guests taking advantage of the reservation system, consectetur adipiscing elit, sometimes after expressing their interest. Franchisors involved in the management and registration of trademarks must register their failure. The difference and completion of a set of reasonable time limits are used to identify retention periods or to build in accordance with. Home is based on various management contract managers who manage your full-time. Proprietary brands receive interest, which is usually negotiated, especially between franchising and contract management? Then, the current management of the management contract, a brand and the degree of control over the franchisee, this agreement or the violation of a consultation. .