Around 12%. That’s the percentage of room revenue a hotel franchisee typically will pay a franchisor for the right to use their name and likeness and all the accouterments that come with it.
Is the price worth it?
It is one question facing hotel owners, who, jostled by needling and expanding expense lines that have made it much more difficult to operate a property profitably, are giving a rethink to the equitability of the franchise agreement in its current form. Beyond that, a younger crop of hotel owners considers the implications of going at it alone—sans brand—using off-the-shelf technology they believe allows them to operate an independent property as effectively. It is a calculation and an earnest one at that.
A hotel franchise agreement is the legal contract between a hotel brand (the franchisor) and a hotel owner (the franchisee) that gives the owner the right to operate the property under the brand’s name and system. The franchisee pays the franchisor fees in exchange for certain services. Reciprocally, the franchisee must adhere to certain brand standards that protect the brand’s reputation and maintain the brand through infrequent though necessary renovations, known as property improvement plans, or PIPs.
The total franchise fee is divided into sub fees, the largest of which is the royalty fee, which covers the hotel’s right to operate under the franchisor’s brand and use its proprietary systems and intellectual property. The fee is typically calculated on a percentage of revenue, not profit, an important distinction.
On the Number
Each year, HVS, a consulting firm that specializes in hotel valuations and appraisals, releases its U.S. Franchise Fee Guide, which, among other things, breaks down what brands charge to use their name and services. As noted in its 2025 release, fee levels vary by chain scale and product type, but the spread is narrower than many owners may expect. Economy brands averaged the lowest total franchise cost, at 9.6% of rooms revenue, while high-end brands averaged the highest, at 12.9%. By product type, median costs ranged from 10.9% for extended-stay hotels to 12.5% for full-service hotels.
Prospective franchisees looking to keep fees down would do well to consider a collection or soft brand as a way to access major brand platforms. HVS found that these brands, such as Ascend Hotel Collection by Choice Hotels or Curio Collection by Hilton, generally charge lower franchise fees than hard brands within the same parent company, with spreads ranging from 0.4% to 2.0%.
One of the most highly tracked fees is loyalty costs—and they are rising, according to HVS, primarily because membership is rising. Consider Marriott Bonvoy, which reached 295 million members as of Q2 2026. As HVS points out, higher loyalty-program contribution rates mean more room revenue is subject to loyalty assessments. Hilton had the highest average loyalty participation rate among participating parent companies, at roughly 67%, according to the survey.
More recently, lodging companies are giving franchisees more breathing room when it comes to loyalty fees. Both Marriott and Hilton announced cuts in their loyalty program fees to succor franchisees facing operational cost bloat; Marriott noted a 5% reduction on its Q2 earnings call, while Hilton heralded a reduction of about 30 basis points since January.
Fair and Balanced
Competing notions of fairness and equitability of the franchise agreement are, naturally, mixed among hotel owners and franchisors. One thing is clear: ever since Kemmons Wilson opened his first Holiday Inn, through the years, the franchise agreement has held up, even if its language is undeniably one-sided. “A franchise agreement is written in favor of the franchisor, not the franchisee,” said Neil Flavin, COO of HVS Asset Management. “Is that always the most equitable way to have a business relationship? Maybe not, but it does work.” Consider the iron-clad nature of a franchise agreement: There is little room to exit one without absorbing very high liquidated damages.
Flavin does see some fissures, particularly in newer and younger prospective hotel owners who are much more inquisitive, circumspect and suspect. “Many third-generation family owners want to go in a different direction [than their parents],” Flavin said, eschewing hard brands and either looking at the prospects of running an independent hotel or affiliating with a collection, and doing so by placing heavy reliance on technology, which their parents and grandparents were less inclined to do.
Sarah Kopit tackled some of this in a wide-ranging piece she penned on the state of the American hotel owner for Skift, where she is editor-in-chief. Her story underscored the quasi-antithetical relationship between hotel owner and brand. As lodging company stock prices skyrocketed, hotel owners contemporaneously struggled. She writes: “In the current economy, the small, midscale hotel owner faces declining occupancy, all while costs are rising. Their take-home profit drops, but they still have to fork over 5% or 6% of topline revenue to the brand.”
Asked by HOTELS what her biggest takeaway was from her reporting, she keyed in on what she believes to be an incongruous relationship between franchisor and franchisee. “The deepest cut was watching the franchise relationship reveal itself as structurally lopsided by design,” she said. “It’s worked almost too well. The hotel brands have never made more money. And the owners aren’t feeling any of that.”
Part of the reason it’s worked so well is that hotel brands have and continue to cycle out of the hotel-ownership game, concentrating instead on the fee-focused, asset-light model, which shifts real estate and operational risk elsewhere.
Kopit comes well short of villainizing the brands. “Public companies have a fiduciary duty to their shareholders to make money. And that’s exactly what they are doing,” she said.
Owner Opinion
It doesn’t stop owners from the occasional bellyache. Prakash Maggan is the CFO of Lexington, Ky.-based Rainmaker Hospitality, which owns and operates select-service hotels, mostly in Kentucky. Maggan is in a unique position to opine on the modern-day status of the franchisor/franchisee relationship: He is the current chair of the global board of directors of the IHG Owners Association, an independent organization representing more than 5,000 IHG hotel owners and operators. It acts as a collective voice to, among other things, advocate for member interests.
Maggan grew up in the hotel business. Putting aside any dissatisfaction in the franchise relationship, Maggan said the sheer size of the actual agreement gives him pause. “The physical size has expanded,” he said. Hotel franchise agreements have generally become longer, more complex and more prescriptive over the past few decades. “Most owners really don’t understand what’s in it and what they are really paying for,” Maggan said.
Which is all to say that the franchise agreement skews in favor of the franchisor. No one understands this better than Steve Rushmore, who, as founder of HVS, is an expert on the franchise agreement. Consider franchise terms: “The franchisor will make owners believe that the agreement is non-negotiable,” Rushmore said. In a clever attempt to make it seem like the franchise agreement is an intransigent document, many hotel companies, Rushmore said, will send the agreement in PDF format.
Rushmore counsels franchisees to pick and choose where to negotiate. It’s not simple: There are hundreds of clauses or provisions in a typical franchise agreement, which can run as much as 150 pages. “I’ve counted somewhere around 133 clauses that are in an agreement that could possibly be negotiated. You probably wouldn’t want to negotiate all of them,” Rushmore said. “You should be aware of the impact of each one of those clauses and probably focus on 10 that really make a difference.”
One of the harder to haggle over is the loyalty program fee, which amounts to the cost and value of participating in the brand’s loyalty ecosystem. And it matters: According to Marriott’s 2025 Form 10-K filing, approximately 75% of its U.S. hotel room nights were booked by loyalty program members. It delivers business, but at a cost, and not at the same pace across the system. “One of the big problems that a lot of hotels have with the loyalty program is that if you have a great location or are in a resort destination, you have a lot of people that burn their points with you,” Rushmore said. Typically, unless the hotel is running at a very high occupancy, it is compensated at a highly reduced rate. “Whenever a loyalty guest stays at your hotel, you pay for that privilege,” Maggan said. “They think that brand loyalty drives revenue. I see a lot of that shifting.”
The Fine Print
Why franchise agreements are difficult to negotiate has as much to do with procedure as parley, said Steve Shapiro, director of the hospitality and tourism law program at American University Washington College of Law. Each year, lodging companies must file what are known as franchise disclosure documents, legal documents a franchisor must provide to a prospective franchisee before the franchisee signs a franchise agreement or pays certain fees. The FDD is essentially the franchisor’s financial, legal and operational disclosure package. The very reason it’s tough to negotiate a franchise agreement is that it would alter the FDD, Shapiro said, and “why they tend to favor the franchisor.”
Negotiating is one thing; enforcement is another; and being laxer on certain elements of a franchise agreement is one more. “There is some pushback,” he said. Part of it deals with brand standards that are built into an agreement—the category of mattress and pillow; choice of hairdryer; TV type—that are meant to be adhered to. Shapiro suggests some flexibility. “We’re hyper local. We know what we’re doing. We’re going to keep the integrity of the brand, but we’re going to try new things,” Shapiro said, aping the franchisee mindset.
Brands are brands for a reason: They represent dependability and promise. It’s why franchise agreements have a certain rigidity. Franchising helped create the economic model that allowed the modern-day hotel industry to scale, powering the American Dream for many. “The franchise model has been one of the most successful business models in hospitality because it combines the strengths of entrepreneurship with the power of scale,” said David Pepper, chief development officer for Choice Hotels International, which franchises hotels through numerous brands, including Comfort, Sleep Inn and WoodSpring Suites. He looks at the relationship as a complementary partnership. “Independent owners bring local market expertise and a personal investment in the success of their hotels, while franchisors provide the brands, technology, distribution, loyalty programs and support systems that help those hotels compete and grow.”
The model ultimately works when the interests of the franchisee and franchisor are aligned, and vice versa, argued Matthew Campbell, the COO of My Place Hotels, a franchisor of upper-midscale, extended-stay hotels. “It is a long-term partnership built around shared accountability and shared success,” he said.
Don’t expect an exodus from the brands. Owning and operating an independent hotel comes with its own risks and challenges. One of the biggest is getting it financed. Many banks require not only a strong sponsor, but a brand in place before making a loan or one under favorable terms.
The larger concern is filling the hotel without brand distribution. And that means higher reliance on online travel agencies, which can charge as much as 25% commission on a room sale. “All of these things need to be taken into consideration over and above what a franchise and what the engine behind that franchise can provide,” said HVS’ Flavin.
It’s a lot to deliberate over. At the end of the day, the franchisee must decide where to deploy capital. Maggan said more hoteliers are becoming disenchanted. “We’re coming to an inflection point where investors are really starting to think, ‘Is this the investment space that I want to deploy capital in?’” he said. “It’s becoming tougher to make a return.”