Using franchise system in hotel establishments and determining its cost

A hotel franchise is essentially an agreement between a hotel chain (franchisor) and a hotel owner (franchisee) whereby the franchisor allows the franchisee to make use of the chain's name and services. In return for this, franchisee pays the franchisor a franchise fee and royalties. Franchisee either operates the hotel or contracts separately with another management company to operate the facility. Modern day hotel franchising started during the 1950s when hotel chains realized that names image, goodwill, established patronage, modes of operation and reservation systems had tangible value. Franchising is a form of financing, managing and marketing all in one. For hotel companies franchising is an attractive vehicle for international expansion because it requires comparatively little risk. Because when people buy a franchise they buy a format and formula that has already been tested and the experience of the franchisor who will teach them what they need to know to succeed. The major advantages of franchising to franchisors are that it provides a distribution system for the franchisor's products and-or services and it brings in revenue in the form of fees from the franchisees. There are also disadvantages to the franchisor which must maintain control over the franchised units to ensure product and service quality. This process is costly and time consuming. Although franchisors are able to expand their distribution systems quickly, they sacrifice the loss of operating income they could receive if they owned and operated the properties themselves. From the owner's prespective franchise arrangements can offer a number of benefits in terms ofobtaining the support of a large organization. Some disadvantages of the franchising for the owners are the excessive costs if the incorrect franchise is chosen and the fact that franchisors can't offer franchisees guaranteed success since operational controls are largely in the hands of franchisees. The contents and substance of franchise agreements are varied and have many legal complications and ramifications. The typical fee arrangement has two parts; an initial franchise fee and ongoing fees. Before selling a franchise, franchisors are required to submit a uniform offering circular (UFOC) to the prospective franchisee. Hotels that involve in franchising will see some changes on their fixed and variable costs, and incomes.