You must be familiar with famous chained hotel brands such as Marriott, Sheraton, Hyatt, Accor or IHG. They are affiliated with a huge number of hotels across the globe. But how do they actually make money? Below is a snapshot of how such brands generate revenue
The bulk of their revenue comes in the form of management and franchise fees. 77% of IHG revenue in 2018 came from management and franchise fees. The figures for Marriott and Accor are 82% and 93% respectively.
Additionally, these fees typically have very high margin as the expenses are low. The hotel chains receive compensation for their brand power and expertise, which can be easily leveraged. In 2018, the fee business margin for IHG after overheads is 52%, compared to the 7% of owned, leased and managed lease.
That is why, at the hotel chains, sales department has a target to hit in terms of how many hotels are to be signed in a period. The more hotels are signed, the more fees will flow into these chains.