Transitional housing is not a term that is used very often, but it refers to temporary housing accommodations for people and families that are either relocating and have not found permanent housing yet, or need to be in a different city for work for an extended period of time. Those people who never have to experience it are rather lucky, as it can often be uncomfortable and stressful.
Studio 6 tries to make those stays less stressful by providing the comforts of home to their guests. With their comfortable and cozy studios, they allow each guest to feel right at home, no matter how long they plan to stay. Full kitchens and a long list of amenities, along with a lower price per night over the other guys, sets them apart from the other extended-stay hotels in the market.
As part of the Motel 6 hospitality family, Studio 6 has a strong background and history of being in the industry. With Motel 6 already being a nationwide presence and household name, Studio 6 is looking to live up to those expectations and join the ranks. They are accepting applications for new franchisees to grow their chain.
From Motels to Studios
The history of Studio 6 begins with the founding of their parent company, Motel 6. Motel 6 was first founded in Santa Barbara, California in 1962. The men behind the plan were Paul Greene and William Becker who wanted to start a chain of hotels for lower pricing than most of the bigger chains were charging.
The chose to call their chain Motel 6, based off of the $6.00 per night rate they had settled on for their rooms.
Through the 1960’s, the chain continued to grow at an ambitious rate, beating out the competition in a number of ways. With an average occupancy rate of 85 percent, they were miles ahead of the other guys who were charging much more per night. After only four years of operation, Motel 6 had grown to a total location count of 25.
Their rapid expansion and impressive sales were enough to capture the attention of the industry. Greene and Becker sold Motel 6 to a private investment firm in 1968.
The chain would go through much more expansion and change. over the next few decades, acquiring other budget hotel chains along the way. They were bought by Kohlberg Kravis Roberts in 1985, and then by Accor in 1990.
Though the majority of Motel 6 locations are owned and operated by the company itself, they began franchising in 1994 to help expedite the expansion process. They also opened themselves up to a different market by launching their Studio 6 chain in 1999.
These extended stay rooms offer much more than their counterparts at the Motel 6 locations, including expanded kitchenettes. The “no frills” concept of Motel 6 still applies, but is less stringent. They offer more amenities than the motels, typically due to the length of stay for their average guests. When appealing to extended stay guests, it’s important to offer more things to keep comfortable and entertained, rather than the basic amenities needed for just a night or two.
Entering the Studio
Franchising with a hotel chain requires a completely different skill set than franchising with a retail or food service brand. Those skills are highly sought after during the application process and Studio 6 will do their best to weed out those that do not meet their standards. Even as a budget motel chain, Studio 6 still has high standards for their levels of service and expects their franchisees to be able to rise to the occasion.
Applicants will first express their interest in learning more about the franchise opportunity by submitting an inquiry to the franchisor. This will open the door to conversation between the two parties and allow the process to begin moving forward.
The initial conversation will be a chance for the franchisor and applicant to get to know each other. The franchisor will lay out some basic information regarding what they are looking for in franchisees and a little bit about what it’s like to be a franchisee. The applicant will disclose their previous business experience and financial status, allowing the franchisor to ensure the applicant meets the basic requirements.
Following the initial conversation, applicants that meet the most basic qualifications will be asked to fill out an application. This application will dive deeper into their previous experience and qualifications.
Those who pass the application process and who are granted a Studio 6 franchise license will need to first pay the franchise license fee. This is the fee that Studio 6 sells the opportunity for. This license allows the franchisee to open and operate a hotel using the Studio 6 name and resources.
The cost of a Studio 6 franchise license ranges from $25,000 to $35,000. This cost is about average for many franchise opportunities, but lower on the scale when it comes to hotel and hospitality chains. Studio 6 is a budget chain, both fro customers and their franchisees.
On top of the franchise license fee, the franchisee will also be responsible for paying for all of the start up and operating costs for the new location. The costs to launch a new hotel will rely heavily upon whether it is a brand new construction, or a remodel of a newly acquired hotel from a different chain. Because most hotels that are acquired from other brands usually remain corporately-owned, for the purpose of this review, all figures will be based upon brand new construction.
The estimated costs to build and launch a new Studio 6 location will range between $3.7 million and $5 million.
These costs will cover the construction costs, furniture and equipment purchases, hiring and training new staff, and decor for the new hotel. It does not include the cost to locate and purchase the real estate on which the hotel will be built.
Opening a new hotel franchise is very costly, no matter what brand name is on the sign out front. Studio 6 is no different. Compared to other extended-stay hotel chains, they still come in at a lower price. It certainly pays to have a no-frills concept.
Maintaining a Sound Relationship
When purchasing a franchise license, it is important to remember that the franchisee will be entering into a business relationship with the franchisor for the duration of the license’s validity. Researching the merits of that relationship prior to purchasing the license can help potential franchisees avoid making a mistake when choosing a franchisor.
Finding a franchise opportunity that matches with their goals and aspirations can be hard enough on an applicant. It becomes more challenging when considering that they will also have to have a stable working relationship with the parent company. During the application process, they will be exposed to multiple different facets of the franchisor’s expectations, provisions, and how they treat their current franchisees. It’s important to take all of this information into account.
One of the main components to this relationship that should be weighed heavily in the process is the amount that Studio 6 charges in ongoing fees. Most franchisors charge royalty and advertising fees to theirs franchisees as a cost of doing business under their name, and Studio 6 follows that suit.
Their rate for royalty fees is currently set at 5 percent of gross total sales. This is a bit lower than the national average of 6 percent. That 1 percent difference can add up significantly over time, especially when considering that the length of the initial license period is 20 years.
The advertising fees for Studio 6 are right on par with the national average at 2 percent. This fee is in place to help the franchisor recoup their costs for developing and implementing all of the national advertising and marketing efforts for the chain. The franchisee will also be expected to spend a portion of their revenue on local advertising.
Because the franchisee is paying fees to be a part of the organization, it seems only right that they would get something in return for their fees. After all, the franchisee could have just as easily put their money into a stand alone business and not had to worry about paying ongoing fees to a franchisor. They need some sort of incentive for purchasing a franchise license.
Franchisors know they need to provide benefits to their franchisees to keep the sale of licenses flowing, so they look for ways to stand out from the competition.
One of the biggest things potential franchisees look for in a franchisor is the level of support that is offered. Those franchisors that offer more support are far more likely to attract investors than those that offer a base level, or even less.
Studio 6’s level of support is higher than the average franchisor, but not as good as some. They offer some areas of support that others won’t even touch, such as the toll-free line for customers to call and find the location that suits their needs best, email marketing support, and others.
With a higher level of support than average, but royalty fees that are below average, it works out to be a pretty financially sound decision for a franchisee. Getting more but paying less is always the goal.
Besides looking at the value of the offering, the applicant can also investigate the relationship with the franchisor by contacting current franchisees and asking them about their experience. Many franchisors actually encourage this, especially when they are confident in their franchisees level of happiness. No one will know more about what it’s like to work with Studio 6 than those who are currently doing so. They can tell the candidate if they feel it was a good investment, and if they are happy with the way the business is going.
Finding out if the franchisor is difficult to work with before moving too deep into the process is the best way to avoid a potential disaster down the road.
Studio 6’s Expansion Numbers
Examining the viability of a franchise opportunity includes looking at their current performance levels. A brand that can establish themselves and prove their ability to prosper instills a higher level of confidence in their potential franchisees.
Studio 6 has been selling franchise licenses since 1999. In those nearly 20 years, they have managed to take their total franchised location count up to 91. For a hotel chain, that’s a pretty number to reach.
With their expansion and eagerness to increase their number, they have also managed to keep their operating hotels successful.
The average Studio 6 location maintains an occupancy rate of 72.87 percent, which is on the high side, especially for an extended stay hotel.
The real gem of this opportunity, though, is the net operating income projections. Studio 6 claims that their average locations earn a net operating income of 52.67 percent. That is an incredibly high rate that can be hard for other chains to duplicate.
With high operating incomes and a growth rate that continuously trend upward, Studio 6’s projections for the future look very good.
The entire process of choosing a good franchise opportunity is long and stressful. Having as much information at the beginning as possible can help make that process smoother and easier on all parties. Candidates can then weed out the franchisors that they have no desire to work with, and franchisors don’t waste their time pitching their brand to an applicant that will ultimately decide to go in another direction.
Studio 6 is a solid choice for anyone looking to open a budget hotel franchise. They have strong numbers proving they can support themselves, and they are marketed toward a niche audience that shows no sign of going away anytime soon.
Their affiliation with Motel 6 gives them that much sought after brand recognition. Having a name that is easily identifiable by consumers makes it easier to draw in customers and serve their needs. Studio 6 also has a strong history with their franchisees. Constant growth and good revenue generation make them a sound financial choice.
The thought of an extended stay hotel may be a turn off for some investors who think think that traditional style hotels are a better way to go, but there is the evidence to back up the opening of an extended stay location. Studio 6 boasts an average stay of 10 nights per guest in their hotels. This means that not only are people checking in, but they are also capitalizing on the extended stay format. They are choosing the hotel with more amenities to remain comfortable for those long trips.
It’s hard to argue with hard facts and numbers. Their average occupancy rate is great and they are reeling in guests for longer stays. For each night those guests stay, the franchisee makes more money. Having a hotel that caters to keeping the guests there longer only makes since to drive up sales.
Hospitality is not an industry that every entrepreneur feels comfortable with, so it’s important that the right candidate be selected to open the franchise. Those that choose to go down this path will be pleasantly surprised by the value of this franchise opportunity. A lot of support and earning potential for a lower price tag is a winning combination, no matter the industry.