An operators HMA fee model is typically made up of management fees, service charges and reimbursable expenses, compensating the operator for its use of its intellectual property, provision of management services, and the charges and expenses covering direct and third-party service provisions:
Operator Compensation Fees
The base & incentive fees form the principal compensation streams for the operator. These operator rewards are set against business performance results, base: total revenue, and incentive: GOP/AGOP. While the effectiveness and efficiency of these results are to some degree controlled by the operator, it is important to note that the performance will most likely be affected to a greater extent by the macro-economic factors beyond the favourable/adverse input of the operator. For the operator project evaluation, the projected combined total of these remunerations during an operating stabilised year is a critical measure often set against a predetermined minimum value to regulate engagement in the project.
Base Fee: Generally considered as the basic fee for the provision of the brand value (for legal/tax reasons occasionally charged separately as a royalty fee) and operators cost of resources in support of the supervision of the hotel management team. Typically charged as a percentage of total hotel revenue (net after VAT).
Typically in the range of 2.0% – 4.0% of total revenue. See: base fee discussion notes.
Incentive Fee: Generally considered as a reward for performance, designed to motivate management to control operating costs and be more conscious of profitability. Typically charged as a percentage of GOP or AGOP and often scaled within bands of percentage GOP.
Typically in the range of 5.0% – 15.0% of GOP/AGOP. See incentive fee discussion notes.
Operator Service Charges
Reservation Fees: Covering the cost of reservation services such as airline systems and Operator reservation systems. Typically applied per booking to system booked & consumed/paid reservation.
Centralised Marketing Contributions: Covering global sales, client data-warehousing, trade fairs, revenue management, e-commerce connectivity, search engine optimisation, property web management, relationship marketing such as airlines, car rental associations, card & retail alliances, promotional programmes, global media, in-house marketing collateral, corporate communications, PR, and customer services. Usually set up as a fund collected from all system hotels within a brand or group of brands and based on a percentage of total room revenue.
Reimbursable Expenses
Individual mandatory and optional fees and system charges covering services such as frequent guest programs, guest satisfaction programs, programs, accounting system & audit costs, software & support licenses, employee training & feedback programs, brand quality inspections.
See also:
- FF&E Reserve Fund
- Technical Services Fee