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Hilton Hotels & Resorts’ True Franchise Cost Breakdown
It was in 1962 when the Hilton Hotels & Resorts started its operations. It wasn’t until in 1965 that they opened the company for franchisees. Presently, its headquarters is in McLean Virginia, and it has around 585 units worldwide. So, if you want to know the estimated Hilton Hotels & Resorts Franchise Cost, this post can help.
Franchise Description
The franchisor for the world-renowned property is Hilton Franchise Holding LLC while its corporate parent is the Hilton Worldwide Holdings, Inc. Aside from the Hilton Hotels & Resorts, they also own, handle, and manage several brands listed below.
- Canopy
- Curio Collection
- Conrad Hotels and Resorts
- Doubletree
- Embassy Suites
- Hampton Inn
- Hampton Inn & Suites
- Hilton Garden Inn
- Hilton Grand Vacations Company
- Homewood Suites
- Home2 Suites
- LXR Hotels and Resorts
- Motto
- Signia Hilton
- Tapestry Collection by Hilton
- Tempo
- Tru
- Waldorf Astoria Hotels and Resorts
The great thing about franchising the brand is that they have their own Hilton System. It includes all necessary operational tools such as the reservation service, marketing and advertising programs. Not to mention, you can access other training materials and construction standards as well.
Franchisee Training
The franchisor requires the franchisee to undergo multiple training programs. It’s how they can get a certification. In doing so, the designated employees or replacement must also take the necessary training required by the franchisor.
There are 13 training programs excluding the new owner orientation and workshops. Virtual or online sessions can be considered classroom training also. The franchisor or its third-party vendors could provide the training courses. Furthermore, web-based courses are self-paced and can be taken anytime and anywhere.
Meanwhile, in the annual brand or regional conference, the participation of the general manager and the director of sales is required.
Whenever necessary, the franchisor will recommend and provide additional training or courses.
Territory
The franchisee will have a non-exclusive license to use the system to operate a hotel at the specified location based on the Franchise Agreement (FA). Furthermore, they will not receive an exclusive territory and may have competition with other franchisees or brands. However, the franchisor might give its franchisees certain territorial restrictions that are specified in the agreement.
Franchisee Obligations
The franchisees must delegate highly qualified management to operate the property. If there’s a third-party management company, the franchisor must approve it first. It’s important to note that in no case that any other person could operate the hotel.
Upon reviewing the financial information of the franchisee, the franchisor will determine the guaranty requirements. Besides, the guarantor must agree that they will assume and agree to discharge certain franchisee’s obligations indicated in the FA.
The franchisee must also agree and comply with the requirements in terms of services, amenities, and products that will be used in the hotel. The property should operate 24 hours a day, except on rare occasions allowed by the franchisor. If the hotel runs an eforea spa, it must also follow the minimum hours required to operate as set by the franchisor.
Term of Agreement
The initial term of the agreement is 23 years after the opening date. On the other hand, the term for conversions is from 10 to 20 years from the opening date. If there will be a change of ownership, the franchise term follows the remaining term of the original and existing agreement.
Take note that the franchisees do not have the right to renew or extend. This will be at the discretion of the franchisor. Then, a new term will be provided and signed.
Financial Assistance
Since we’re talking about large-scale operations, we must expect that the Hilton Hotels & Resorts franchise cost could be high as well. However, the franchisor may provide incentives for new hotels. This means they could offer contributions to the hotel’s development. To be clear, this is not a loan but a contingent liability.
The franchisor doesn’t offer direct or indirect financing for its franchisees as well. But, they could provide other types of financing like a mezzanine loan.
Did You Know?
Here are some interesting facts you might want to know about the property aside from the Hilton Hotels & Resorts franchise cost.
Hilton’s Loyalty Scheme
In 2015, the company added six million new members in its loyalty program. It shows how the brand is still dominating the market.
Innovative Products
Hilton Hotels & Resorts remain as the global leader in providing innovative industry solutions. Not to mention, they’re the first hotel to earn LEED and Green Seal environmental certifications.
New Job Opportunities
The hotel was able to create 20,000 jobs due to its established properties. Because of high demand, the number could grow in the succeeding years.
John Lennon’s Imagine
It was 1971 when John Lennon stayed in one of Hilton’s properties when he was able to brainstorm one of his greatest hits – Imagine. In fact, the word ‘Imagine’ was written on a piece of the hotel’s stationery.
Hilton Hotels & Resorts Franchise Cost
Check out the tables below to see the estimated Hilton Hotels & Resorts franchise cost for a 300-room property.
Your Investment
| Name of Fee | Low | High |
|---|---|---|
| Franchise Application Fee | $95,000 | $95,000 |
| Product Improvement Plan | $0 | $7,500 |
| Market Study | Varies | |
| Environmental Assessment | Varies | |
| Real Property | Varies | |
| Construction and Leasehold Improvements | $16,000,000 | $86,000,000 |
| Designer and Engineering Fees | $700,000 | $4,000,000 |
| Furniture, Fixtures and Equipment | $8,000,000 | $15,400,000 |
| Inventory and Operating Equipment | $1,500,000 | $3,150,000 |
| Signage | $50,000 | $150,000 |
| Computer Hardware and Software | $151,095 | $376,395 |
| Guest Internet Access Program | $136,500 | $223,500 |
| Delphi Sales and Events System | $2,500 | $41,000 |
| Required Pre-Opening Training | $5,000 | $20,000 |
| ADA Consultant Fee | $2,500 | $15,000 |
| Construction or Renovation Extension Fee | $0 | $10,000 |
| Insurance | Varies | |
| Organizational Expense | $75,000 | $245,920 |
| Permits and Licenses | $240,000 | $1,300,000 |
| Miscellaneous Pre-Opening and Project Management Expenses | $1,000,000 | $3,200,000 |
| Contingencies | $1,600,000 | $8,600,000 |
| Additional Funds (working capital for 3 months) | $1,000,000 | $1,600,000 |
| Eforea Spa Initial Fee | $25,000 | $25,000 |
| Additional Funds for eforea Spa Implementation | $0 | $4,500,000 |
| Other Required Preopening Services Fees | $23,510 | $27,780 |
| ESTIMATED TOTAL | $30,581,105 | $128,987,095 |
Other Costs
| Type of Fee | Amount |
|---|---|
| Monthly Royalty Fee | 5% of gross rooms revenue. |
| Monthly Food and Beverage Fee | 3% of gross food and beverage revenue. |
| Monthly Spa Royalty Fee | 2% of gross spa revenue. |
| Program Fee (per month) | 4% of gross rooms revenue. |
| Room Addition Fee | $400 per guest room or suite. It’s then multiplied by the number of additional guest rooms. |
| OnQ Fees Fee Based Pricing Program (FBPP) Fee | 0.35% to 0.45% of gross rooms revenue for REIT hotels. On the other hand, it’s 0.45% to 0.75% of gross rooms revenue for non-REIT hotels. |
| OnQ Fees Additional Rooms Fee | $120 per additional guest room/suite. |
| OnQ Connectivity Fees | There is no separate fee charged for brand hotels. |
| OnQ Interface Fees | $1,000 per additional interface. |
| OnQ Maintenance Support Fees – REIT Hotels | $1,500 to $5,600 per month. |
| OnQ Email Fees | $7.92 per user per month for email. And $12.50 per month for delivery to mobile devices. |
| Delphi Sales and Events System | $798 per user per year. |
| Guest Assistance Program: Customer Satisfaction Guarantee | $300 per handled transaction for Hilton Honors Diamond members. It’s $250 per handled transaction for Hilton Honors Gold members. Meanwhile, it’s $200 per handled transaction for all other guests. |
| Guest Assistance Program: Price Match Guarantee | Hotels must honor a 25% discount off the lower rate on all approved claims. |
| Guest Assistance Program: First Contact Resolution | $15 administrative fee. |
| Guest Assistance Program: Online Complaints | $25 per complaint administrative fee. |
| Guest Assistance Program: Brand Operations Tech Fee | $323 per year. |
| Quality Assurance Re-evaluation Fee | $480 to $3,000 per re-evaluation visit. |
| Quality Assurance Special Re-evaluation Fee | $3,000 per re-evaluation visit. |
| Brand Conference | $2,800 per attendee. |
| General Manager Training | $1,550 per attendee. |
| Commercial Leader Training | $1,550 per attendee. |
| Hilton Learning Certification | the cost is $500 per attendee. |
| Training Programs and Training Materials | $0 to $5,000 per program per attendee. |
| AAA/CAA Discounts & Rewards Program | $0.30 per available room. |
| AAA/CAA Discounts & Rewards Program: Member Direct | 10% commission. |
| AARP Program | $0.30 per available room. |
| AARP Program Commission | 10% commission. |
| Hilton Advance Program | 1.35% of eligible Digital Direct Revenue. Not exceeding $30 per stay. |
| FastPay (Centralized Group Meeting Payment Program) | Up to $1.40 per transaction, plus commission. |
| Group Preferred Partnership Program | $1.50 per transaction, plus the applicable commission. If the franchisor increases this fee, it will not exceed $2.50 per transaction, plus commission. |
| Frequent Traveler/Guest Reward Program | 4.3% of total eligible guest folio. This fee is waived for stays in which the guest is enrolled on-property in Hilton Honors. |
| Hilton Honors Event Planner Bonus Program | $0.0025 to $0.0050 per Hilton Honors bonus point awarded. |
| Third-Party Reservation Charges | $5.45 per stay. |
| Travel Planner Centralized Payment Program (TPCP) | Up to 10% commission and $0.18 per transaction processing charge. |
| Unlimited Rewards Travel Counselor Incentive and Loyalty Program | Weekday stay (Monday -Thursday nights) = $0.71; Weekend stay (1 Fri/Sat/Sun night) = $1.42; Weekend stay (2 Fri/Sat/ Sun nights) = $2.13. Double Dollars, amounts increase to $1.42, $2.63, and $3.84 respectively. |
| Change of Ownership Application Fee | $125,000. |
| Permitted Transfer Processing Fee | $5,500. A discount of $500 will apply if all parties use the franchisor’s preferred method of electronic signature |
| Re-licensing Application Fee | $75,000. |
| Lender Comfort Letter Processing Fee | $3,500 for Lender Comfort Letters and $1,500 for Lender Comfort Letter Assignments. A discount of $500 will apply if all parties use the franchisor’s preferred method of electronic signature. |
| Public Offering or Private Placement Processing Fee | $5,000. |
| Management Fees | Fees will be established by mutual agreement. |
| Actual Damages Under Special Circumstances | Varies. |
| Audit | Actual amount of deficiency plus interest. |
| Default Remedies | Actual expenses. |
| Indemnification | Actual amount paid by the franchise or its affiliates. It could be due to any claim, demand, tax, penalty, or judicial or administrative investigation or proceeding. This may have arisen from any claimed occurrence at the franchisee’s hotel. |
| Insurance | Actual amount. |
| Liquidated Damages for Unauthorized Opening | $5,000 per day that the hotel is open without authorization. |
| Liquidated Damages for Pre-Opening Premature Termination | The system’s average monthly royalty fees multiplied by 60. |
| Liquidated Damages for Post-Opening Termination ¹ | The greater of: (a) the hotel’s average monthly royalty fees multiplied by 60. Or (b) the system’s average monthly royalty fees multiplied by 60. |
| Liquidated Damages for Post-Opening Termination ² | The hotel’s average monthly royalty fees multiplied by 60. |
| Liquidated Damages for Post-Opening Termination ³ | The hotel’s average monthly royalty fees multiplied by the number of months remaining in the term. |
| Service Charges for Overdue Payments | 1.5% per month or highest percentage permissible by law. Whichever is less. |
| Taxes | Actual amount. |
| Identity, Sales, and Distribution Non-Compliance Fee | $500 per instance. |
| FA Non-Compliance Fee | 1% of gross rooms revenue. |
| Group Distribution Administrative Fee | $500 to $3,000 per instance. |
| Consultation and Service Fees | Set by the franchisor on a project basis. |
| Consortia Program | $2.70 for each consumed night booked under the consortia “parity” rate, plus applicable commission. |
| TMC Pay-On-AII-Pay-For Performance Program | $1.03 plus up to 10% commission or fee. It’s wherever applicable, for each consumed night booked by a TMC travel agency. If the franchisor increases this fee, it will not exceed $1.15, plus commission. |
| FedRooms Program | 1.75% of room revenue for each consumed stay booked under the Program SRP. |
| CWTSato Travel Program | $2.30 for each consumed night booked under the program SRP. And standard travel agency commissions ranging from 8% to 10%. |
| DOD Preferred Program | 1.75% of room revenue for each consumed stay booked under the program SRP. |
| Omega World Travel Government/ Consortia Programs | $2.30 for each consumed night booked under the program SRPs. And standard travel agency commission ranging from 8% to 10%. |
| ADTRAV Government Pay for Performance Fee | $2.30 for each consumed night booked under the program SRP. And the standard travel agency commission ranging from 8% to 10%. |
| ResMax Program | 5.15% to 5.65% of consumed revenue from ResMax booking. The rate varies due to type of booking, length of stay, and other factors. |
| Revenue Management Consolidated Center (RMCC) | One-Time Service Models, $699 to $1,499 (Category 1). Full Support Models (per month), $3,710 to $6,250 (Category 2). Monthly Reports Only Models, $1,055 to $1,595 (Category 3). Monthly Lead Management Service Models, $1,060 to $1,440 (Category 4) |
| Procurement and Service Fees | 4% to 10% of product cost. |
¹ Payable if the franchisor terminates the FA on or after the Opening Date. But before the 2nd anniversary of the Opening Date.
² Payable if the franchisor terminates after the 2nd anniversary of the Opening Date. But, before the last 60 calendar months of the Term.
³ Payable if the franchisor terminates the FA within the last 60 months of the Term.
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