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Which Hotel Brand Partnership Model is Right for You: Management Contract, Franchise Agreement, or Revenue Sharing/Lease?

  • Writer: investloft
    investloft
  • Dec 29, 2024
  • 3 min read
Businessman pointing at a digital graphic of a hotel with connected management icons. Text includes "Management Contracts" and "Revenue Sharing."

When partnering with a leading hospitality brand, hotel owners face several strategic choices to maximize their property's potential. Among these, deciding between a management contract, franchise agreement, or a revenue sharing/lease model is critical. Each model has distinct advantages and challenges, and the right choice depends on your operational goals, experience, and risk appetite.

At INVESTLOFT, we specialize in helping hotel owners navigate these options to find the ideal solution for their business.


Exploring the Options


1. Management Contract

Under a management contract, the brand assumes complete responsibility for operating the hotel. The owner provides the property and infrastructure, while the brand handles all operational aspects, including staff recruitment, marketing, and day-to-day management.


Advantages:

  • Expertise of seasoned hotel operators.

  • Access to established branding and operational systems.

  • Ideal for owners with limited industry experience.


Challenges:

  • High management fees and profit-sharing obligations.

  • Limited control over operations and strategic decisions.


2. Franchise Agreement

With a franchise agreement, the owner operates the hotel while adhering to the brand's standards and guidelines. The brand provides training, marketing support, and reservation systems in return for franchise fees.


Advantages:

  • Retains operational control while leveraging the brand’s goodwill.

  • Lower fees compared to management contracts.

  • Greater flexibility in operations.


Challenges:

  • Requires strong operational expertise.

  • Risk of non-compliance with brand standards, potentially leading to penalties.


3. Revenue Sharing or Lease Model

In a revenue-sharing model, the owner and brand share the revenue generated by the hotel. Alternatively, in a lease model, the owner leases the property to the brand for a fixed rent, and the brand manages all operations independently.


Advantages:

  • Predictable income in lease agreements.

  • Shared financial risk in revenue-sharing models.

  • Minimal operational involvement for the owner in lease agreements.


Challenges:

  • Revenue-sharing models may lead to variable income depending on market performance.

  • Lease models might yield lower returns compared to other models in high-performing markets.

Key Factors to Consider

  1. Operational Expertise: Choose a model that aligns with your level of hospitality knowledge and experience.

  2. Control vs. Autonomy: Decide how much control you want to retain over daily operations.

  3. Risk Tolerance: Revenue sharing involves higher risk but potentially higher rewards, while leases offer stability.

  4. Financial Goals: Evaluate fee structures, revenue splits, and profitability to select the most suitable model.

  5. Brand Compatibility: Some brands have a preference for specific models based on their operational philosophies.

How INVESTLOFT Can Help


At INVESTLOFT, we understand the complexities involved in selecting the right partnership model. Our team provides comprehensive guidance to ensure your decision aligns with your property’s potential and your financial goals.

  1. Market Feasibility Studies

    We assess local market trends, competitive landscapes, and demand-supply dynamics to recommend the best model for your property.

  2. Negotiation with Brands

    Our expertise lies in negotiating favorable terms with top hospitality brands, ensuring you secure the most advantageous agreement.

  3. Customized Strategy Development

    We provide personalized recommendations based on your objectives, whether it’s a management contract, franchise agreement, or revenue-sharing/lease model.

  4. Legal and Financial Support

    From evaluating contracts to ensuring compliance, our team works with legal and financial experts to protect your interests.

  5. Ongoing Support

    Our involvement doesn’t end with signing the agreement. We continue to support you throughout the implementation and operational phases.

Why Partner with INVESTLOFT?


With years of experience and a proven track record, INVESTLOFT has facilitated successful brand partnerships for hotel owners across diverse markets. We bring unparalleled industry insights and a client-first approach to help you make informed decisions that drive sustainable growth.


Whether you’re considering a management contract, franchise agreement, or revenue-sharing/lease model, INVESTLOFT is your trusted partner in achieving the best outcomes.


Contact us today to explore how we can transform your hotel investment into a thriving business!

Write to us at contact@investloft.in

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