If your goal is to expand and grow your brand through additional outlets or service areas, then franchising is the correct legal model and licensing is not an alternative.
To learn more about licensing vs. To learn more about converting your license system to a franchise, click here. To learn more about franchising your business, click here.
To reach our team directly, give us a call at Licensing Vs. Latest Articles What is Franchising? Another difference between franchising vs. In a franchise agreement, the franchisor can lay out specific guidelines for how the franchisee markets the business, uses brand trademarks, where the business is located and how the business is operated. In comparison, a licensor has very little control over the business of a licensee.
Most often, businesses that grant or purchase licenses deal with products. Licenses are great for adding a well-known brand or image to a product, such as clothing or other consumer goods.
On the other hand, franchises are generally service-based businesses. Most businesses that form a franchise operation are chain restaurants, hotels, cleaning services, auto repair shops, software repair companies, etc.
In general, a franchise agreement is a much more stringent and complicated agreement. There are many moving parts within a franchise agreement, where a licensing agreement is a simple loan of certain protected marks or images. In both instances, general contract law is followed for both licenses and franchises.
In addition, there are specific federal regulations for franchises at the federal level and some additional requirements set down by certain states. When starting a franchise, there are a lot more legal hurdles and regulatory requirements that must be followed than with a license agreement. Understanding the differences between franchises and licenses is only the first step in figuring out which is the right business model for you.
One of the pros of becoming a franchisee is all the benefits of being a self-employed business owner without the risks of starting a new business. Purchasing a franchise is often much less risky than starting a business from scratch, and while there can be significant fees involved, they may amount to a smaller investment than if you were to build your own company from scratch. Franchising also has the benefit of a shared relationship. The franchisor gets to scale their business rapidly while minimizing some of the work, which is instead done by franchisees.
Additionally, the franchisee works with the franchisor to manage the business and learn business skills that they may not know already. In comparison to licensing, one of the big pros of franchising is the depth of the relationship between franchisee and franchisor. The franchise agreement may be complicated, but it also provides a wide range of opportunities. One of the drawbacks for a franchisee is the loss of control.
While this support can be beneficial while learning the ropes of the business, it can also feel like being micromanaged to experienced business owners.
However, this control is a pro for the franchisor, as they can still dictate how their brand is used. In comparison to a license, a franchise will seem much more expensive and complicated.
In comparison, a licensing agreement only gives you access to use specific trademarks in certain ways. So, a license will be cheaper and less complicated, but it also gives you access to a lot less. Because of this cost discrepancy, business owners will sometimes opt for licensing agreements instead of franchising agreements; however, these are not interchangeable and often do not work for the same types of businesses. If initial fees are prohibiting you from starting a franchise, you may want to check out these low-cost franchise options , or you can also seek out franchise financing to help you fund these expenses.
One of the pros for licensing is the freedom for the licensee. In general, a license agreement happens between two established businesses. The licensee is purchasing the right to use protected marks that are already recognizable and appreciated by a built-in fan base.
This makes licensing a secure investment and a great way to boost your business. In comparison to franchises, another positive aspect of a license is the simplicity of the agreement. Because the license agreement covers the use of only one or a few protected marks, the agreement will be fairly simple and straightforward.
The major con of licensing over franchising is the limitations. Today we attempt to understand the differences between Licensing vs Franchising. To understand Licensing, let us take the example of Walt Disney.
It is the registered owner of cartoon characters like Mickey Mouse, Donald Duck, etc. There are many merchandises which bear these characters on it; like bags, cups, bottles, etc. This kind of arrangement is referred to as licensing. You are free to use this image on your website, templates etc, Please provide us with an attribution link How to Provide Attribution? Now suppose you feel like eating a pizza, as opposed to a home-made pizza offered by your mother; the obvious choices that come in your mind are Pizza Hut, Dominos, etc.
The brand value which is built after years of struggle is at stake for these niche companies. This in return ensures Pizza hut that it can penetrate different markets Penetrate Different Markets Market penetration is calculated as how much the product or service is being used compared to its total market and how it creates a position in the market, especially in the primary stages of setting up the business. Though both share similar advantages, licensing can be called a subset of franchising; i.
Franchising is a much broader concept since it involves a greater degree of control by the franchisor. This has been a guide to Licensing vs Franchising.
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