Hotel Revenue Glossary · Financial

Franchise Fee

Fees and required contributions under a hotel franchise or licence agreement may cover brand, reservation, loyalty, marketing, technology, and other services. Scope, basis, amount, term, and exclusions vary; use the executed agreement and current statements.

Why it matters: Franchise fees are a significant cost that reduces NOI. Revenue managers must generate enough incremental revenue from brand affiliation (loyalty members, brand.com bookings, GDS access) to justify the franchise fee — otherwise the brand is a net cost.

Worked example: Take a licence charging a 5% royalty plus 4% in combined marketing and reservation contributions, all on rooms revenue. At A$6.3 million of rooms revenue that is A$315,000 plus A$252,000, or A$567,000 a year. At an average A$188 a night, the brand has to deliver 3,016 room nights you would not otherwise have sold just to break even. Count brand.com and loyalty-member nights against that number every quarter.

Common mistake: Crediting the brand with every brand.com booking. A guest who searched your property by name and landed on brand.com because it outranks your own site was already yours. The honest test is incremental: bookings sourced from the loyalty base, the brand's GDS reach, and cross-property referrals — not traffic the brand intercepted.

All glossary terms Management Fee NOI (Net Operating Income) Distribution Channel