You’re in luck if you’ve ever considered purchasing a hotel franchise but weren’t sure if you’d make enough money to justify the investment. We’ll tell you how much money hotel franchisees make on average each year and how that figure is calculated.
How much money do hotel owners make each year?
Hotel chain owners are said to earn between $40,000 and $60,000 a year. However, the figure was derived from a Business Week story from 2009, and it does not appear to have been updated since then. Using an inflation calculator, we calculated that hotel chain owners earned between $49,000 and $74,000 per year in 2021 dollars.
To put this in context, the American middle class is made up of those who earn between $48,500 and $145,500 each year. The amount of money needed to be considered “middle class” is determined on the size of your family and your location. However, the phrases “compensation” and “income” are rather deceptive, as these figures refer to the average annual profit from operating a hotel in the United States.
Profit vs. Income
What is the distinction between profit and salary? You can’t use the revenues from your hotel for anything other than income in order to classify it as salary. If emergency repairs are required and the cost of the repairs is deducted from the hotel’s profit, your salary as the owner of the hotel has been lowered by the cost of the repairs.
Several factors have an impact on profits, such as:
- Taxes on the business
- Repayment of a business loan
- Hotel essentials (new equipment, repairs)
- Wages/ salary of employees
- Business insurance premiums (annual/semi-annual)
You might have other annual expenses to consider. Because they are deducted from your profit, all of the following items will diminish your revenue. After paying your business expenses, your income matches whatever remains from the hotel revenues. Next, let’s look at the frequently misunderstood topic of franchise fees and how they affect income.
Fees for a Franchise
When considering owning a franchise, many business owners are unaware of the actual cost of the franchise fees. Yes, there is a one-time franchise charge for the right to use the hotel’s name, logo, and other trademarks, but there may also be monthly or annual franchise costs. In some cases, depending on your franchise agreement, you may be obliged to pay a monthly marketing cost. This charge assists the franchisor in paying for national and/or local promotion of the brand, which benefits you directly.
You’ll almost certainly have to pay the franchisor a monthly royalty, which could vary from 4 to 12 percent of your revenues depending on your franchise agreement. Both of these ongoing franchise fees are deducted from your profits, lowering your actual earnings even further.
Hotel type
Naturally, the type of hotel franchise you select will have an impact on your annual profit. The quantity of possibilities available to you may surprise you. There are upscale/luxury franchises, economy hotels, and mid- level hotels to choose from. Wyndham and the Ritz-Carlton are two examples of luxury hotel chains. Restaurants, bars, and more luxury amenities such as room service, in-hotel spas, and conference rooms with cutting-edge technology are commonplace in these types of hotels. A luxury franchise is projected to cost roughly $113,000,000 to set up. That’s a big investment up front, but you’ll be able to charge higher room rates and possibly make more money in the long run.
Super-8, Motel 6, and Econolodge are examples of economy franchises. They have no frills rooms and may serve cold breakfast, but they rarely serve hot breakfast. An economic franchise costs roughly $2,800,000 to set up. Hampton Inn, Best Western, and Ramada are some examples of mid-level franchises. These chains usually serve a hot breakfast and may include additional amenities such as a gym and/or a pool. A mid-level hotel chain’s average initial start-up expenditure are roughly $20 million.
Of course, the more services your hotel provides, the more expenses you’ll have to spend for—for example,
- Pool upkeep, equipment, and repairs
- Getting a bartender and keeping him or her
- For a restaurant or bar, alcohol and food supplies
- Exercise equipment maintenance
- Technology in conference rooms and meeting spaces must be kept in good working order
- Additional employees to work at a restaurant, bar, spa, or other such establishment.
You’ll need to figure out whether the cost of maintaining a high-end hotel is offset by the higher room rates you can charge.
Hotel’s Age
You should also evaluate the age of the physical hotel building. It may seem apparent, but buying a franchise with a fresh or newer structure means less upfront upkeep costs, which means more earnings stays in your pocket. Older hotels may need more maintenance and repairs to stay in good shape, which will reduce your annual earnings and leave you with less take-home money.
Remember that, in addition to maintenance personnel, you’ll need to consider the following:
- Original parts for older equipment can be difficult to come by or find.
- There’s a chance that older buildings contain lead or asbestos, which will need to be remedied when repairs are made.
- Replacement of damaged equipment with equivalent fixtures (furniture, carpet, lighting, bedding). You don’t want the fresh additions to look out of place.
- The franchisor may impose remodeling costs.
However, an older hotel may have a lower franchise fee than a new build, so you’ll have to weigh whether the lower up-front investment is offset by the greater remodeling and maintenance and repair expenditures.
Cost of Operations
Finally, all of your running expenses must be considered because they will affect your hotel’s total profitability. You won’t have an accurate understanding of your weekly, monthly, or annual profit if you don’t prepare for these expenses ahead of time, and you won’t know what you can expect on as income from your business if you don’t plan for them. You’ll have a fair notion of how much you can reasonably anticipate to earn from a successful hotel if you’re able to create an accurate budget from the start.
This includes intangibles like company insurance, employee wages, ongoing franchise fees, and a high-quality point-of-sale system, in addition to the materials you’ll need for the hotel (such as bedding).