Question

1. A 335-room hotel property recorded in 2004 a 66.6% occupancy and an ADR of $117.98. What is the property’s franchise fee (1) on a per available room basis and (2) as a percentage of rooms revenue if the agreement required the hotel to pay a reservation fee of $7.65 per available room per month; a royalty fee of 5% of rooms revenue; an advertising fee of 2.3% of rooms revenue; and a frequent traveler program fee of $5.00 per occupied room. The hotel had frequent stay guests totaling 6% of the occupied rooms. The initial fee is a minimum of $45,000 plus $300 per room for each room over 150.              Please calculate annual room revenue (round to a whole number) $ ___ 2. Please use the information from Question 1 to calculate the Royalty Fee.            Royalty fee (round to a whole number) $ ___ 3.Please use the information from Question 1 to calculate the Reservation Fee.              Reservation fee (round to a whole number) $ ___ 4.Please use the information from Question 1 to calculate the Advertising fee.         Advertising fee (round to two decimal places) $ ___ 5.Please use the information from Question 1 to calculate the Frequent traveler fee.               Frequent traveler fee (round to two decimal places) $ ___ 6.Please use the information from Question 1 to calculate the Initial fee.               Initial fee (round to a whole number) $___ 7.Please use the information from Question 1 to calculate the Total franchise fee.               Total franchise fee (round to a whole number) $ ___ 8.Please use the information from Question 1 to calculate the Franchise fee on PAR basis.              Franchise fee on PAR basis (round to two decimal places) $___ PAR/yea 9.Please use the information from Question 1 to calculate the Franchise fee as a % of revenue.              Franchise fee as a % of revenue (round to two decimal places) ___%

Answer 1

1. Annual Room Revenue = Number of Rooms * Occupancy Rate * ADR * Number of days in a year

= 335 * 66.6% * 117.98 * 365

= $9,607,719

2. Royalty Fee = Room Revenue * 5%

= 9,607,719 * 5%

= $480,386

3. Reservation Fee = Number of Available Rooms * Rate * Number of Months

= 335 * 7.65 * 12

= $30,753

4. Advertising Fee = Room Revenue * 2.3%

= 9,607,719 * 2.3%

= $220,977.54

5. Frequent Traveller Fee = Number of Rooms * Occupancy Rate * Frequent Guest Occupancy * Rate * Number of Days

= 335 * 66.6% * 6% * 5 * 365

= $24,430.55

6. Initial Fee = 45,000 + [300*(335-150)]

= 45,000 + [300 * 185]

= 45,000 + 55,500

= $100,500

7. Total Franchise Fee = 480,386 + 30,753 + 220,977.54 + 24,430.55

= $756,547

8. Total Franchise Fee on PAR Basis = Total Franchise Fee / Number of Available Rooms

= 756,547 / 335

= $2,258.35

9. Franchise fee as a % of Revenue = Total Franchise Fee / Annual Room Revenue * 100

= 756,547 / 9,607,719 * 100

= 7.87%

Note: It is assumed that franchise fee includes all on going costs and does no include initial fee paid. However, if the same is considered to be a part of the franchise fee, it should be included and all the subsequent transactions will vary.

Reach out to us if you need more explanation or assistance.