Key Difference Between Licensing and Franchising
- The licensee is governed by the licensor’s terms of use as prescribed in the licensing agreement for the licensed product. The licensor, however, has no autonomy over the licensor’s business.
- The franchisor exercises enormous control over the franchisee’s business regarding the quality of service provided, marketing and selling strategies, etc.
What is the difference between a license and a franchise?
Franchise: the franchisee uses a company’s business model and brand to run their own store/restaurant/etc. as essentially it’s own entity. Examples would include Domino’s Pizza, Midas, and Merry Maids. Licensee: a company sells the license (brand, copyright) of an item or items to other companies. A primary example is a professional sports team selling the license of their logo (or, brand) to a sporting goods store.
Is franchising and licensing the same?
Many think that franchising and licensing are same, but the fact is that they are different, only the advantages of franchising are similar to those of licensing.
What is licensing and franchising?
Understanding the licensing and franchising meaning is important if you want to grow your business. Basically, franchising means that you're allowing another person to duplicate your business in another location, and licensing is when you allow someone else to sell your products.
What is a franchise license?
Whether you have an established business, or another business arrangement, a franchise can often be the best option to expand their company into a new type of business. A franchise license is a type of licensing agreement between two companies that allows one business access to the brand, logo, and resources from the other business.
Why is franchising better than licensing?
Different Levels of Control - License agreements are limited to granting another business the right to use a trademark or technology but does not include control over how the business operates. Franchise agreements are broader and control how a business operates.
What is the difference between franchise and franchising?
Technically, the contract binding the two parties is the “franchise,” but that term more commonly refers to the actual business that the franchisee operates. The practice of creating and distributing the brand and franchise system is most often referred to as franchising.
What is the purpose of franchising?
It sells the right to use its name and idea. The franchisee buys this right to sell the franchisor's goods or services under an existing business model and trademark. Franchises are a popular way for entrepreneurs to start a business, especially when entering a highly competitive industry such as fast food.
What are the benefits of franchising?
There are several advantages of franchising for the franchisee, including:Business assistance. One of the benefits of franchising for the franchisee is the business assistance they receive from the franchisor. ... Brand recognition. ... Lower failure rate. ... Buying power. ... Profits. ... Lower risk. ... Built-in customer base. ... Be your own boss.
What are the 4 types of franchising?
The four types of franchise business you can invest inJob or operator franchise. These owner operator franchises are usually home based, which keeps overheads down to a minimum. ... Management franchise. ... Retail and fast food franchises. ... Investment franchise.
What are the two types of franchises?
The two most common forms of franchising are product distribution and business format.
Is McDonald's franchised?
McDonald's is an equal opportunity franchisor by choice. We seek individuals who are capable of operating multiple locations. Candidates who have successfully operated multiple businesses may be suited to operating several McDonald's franchises.
Is KFC a franchise?
KFC Franchise is owned by Yum! brands, global franchisor whose 3 restaurant brands, Pizza Hut, Taco Bell and KFC, are amongst the largest and most well-known franchises in the world. They are leaders in their respective industries - Pizza, Mexican and chicken. Yum!
What is franchise ownership?
With a franchise, you are investing in an established business, and you are given specific instructions on how to operate it and receive ongoing support and training to ensure success. With franchise ownership, you are committed to following the franchisor’s system, branding and operating procedures. You are also restricted to do business within a specific territory. Franchising offers investors a detailed road map for success.
What is licensing in business?
With licensing, you are obtaining the rights to a certain asset. It’s more like ordering something à la carte. That asset can be part of a bigger business. You can control the business as you wish and use the licensed asset as agreed on in a contract with the licensor.
What is IFPG certification?
IFPG trains individuals to become Certified Franchise Consultants and earn money selling franchises. Franchising and licensing both offer business opportunities with some of the work already done for you, but that doesn't mean they're exactly the same. Franchising is more like a full-service package. Think of it like ordering from ...
Why do franchisees lose control?
There is a loss of control because franchisees must follow the franchisor’s system. But in my experience, many people invest in franchises for that very reason. Most of us can name several examples of franchised businesses without much thought. After all, franchised businesses are all around us.
What is a license agreement?
Licensing agreements run the gamut from obtaining the right to use software and apps to using the name or brand of another company to sell products. To give an example, Disney licenses the use of its beloved characters to companies that sell products such as t-shirts, lunchboxes and kids' pajamas.
What are the elements of a franchise?
In legal terms, three elements distinguish a business as a franchise: trademark license, degree of control and payment of an initial fee. With these three factors present, a franchise is required to comply with franchise laws. Every franchise must issue a franchise disclosure document (or FDD).
How to decide what type of business is right for you?
Whether licensed or franchised, the most important part of deciding on what type of business is right for you is by looking at the big-picture stuff. Are you excited about it? Will it suit your lifestyle? Will you make a good return on your investment? These are things you can find in both structures, so you owe it to yourself to do your due diligence.
What is the difference between licensing and franchising?
Difference Between Licensing and Franchising. Licensing refers to an arrangement between licensor and licensee where latter party would acquire the right to use products and goods where the ownership remains with the licensor whereas Franchising refers to an arrangement between franchiser and franchisee where the latter will enjoy the ownership ...
What is franchising agreement?
Franchising: It is an agreement between two parties where the , one party (henceforth referred as the franchisor), permits another party (henceforth referred as the franchisee) to use its brand name or business model for a fee in order to conduct the business as an independent branch of the franchisor. Licensing: It is an agreement between two ...
What is Licensing?
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., these characters are nothing but the outcome of an artist’s imagination which is now popular around the world. There are many merchandises which bear these characters on it; like bags, cups, bottles, etc.; now Walt Disney is not the sole manufacturer of this merchandise. Hence anyone apart from Walt Disney manufacturing these products enters into an agreement with the former to gain a right to use these characters on its merchandise for some consideration & sell the same. This kind of arrangement is referred to as licensing.
What is a license agreement?
Licensing: It is an agreement between two parties where the, one party (henceforth referred to as the Licensor), sells another party (henceforth referred to as the Licensee) the rights to use its intellectual property or manufacture the licensor’s products in exchange of royalty.
Who is governed by the licensor's terms of use?
The licensee is governed by the licensor’s terms of use as prescribed in the licensing agreement for the licensed product. Licensor, however, has no autonomy over the business of the licensor
Is franchising a subset of licensing?
Though both share similar advantages, licensing can be called a subset of franchising; i.e. a typical franchising arrangement would involve numerous licensing agreements to transfer the use of intellectual property rights. Franchising is a much broader concept since it involves a greater degree of control by the franchisor.
What is the difference between franchising and licensing?
The difference between licensing and franchising can be drawn clearly on the following grounds: 1 Licensing is an arrangement in which a company (licensor) sells the right to use intellectual property, or produce a company’s product to the licensee, for a negotiated fee i.e. royalty. Franchising is an arrangement in which the franchisor permits the franchisee to use business model, brand name or process for a fee, to conduct business, as an independent branch of the parent company (franchisor). 2 Contract Law governs, licensing whereas franchising is regulated, franchising regulations in many countries, but in case the franchising regulations are not in place then the company law regulates. 3 Licensing does not require registration, whereas registration is a must in the case of franchising. 4 In franchising, complete training and support are provided by the franchisor to franchisee which is absent in licensing. 5 The licensor has control on the use of intellectual property by the licensee but has no control over the licensee’s business. However, the franchisor exerts considerable control over franchisee’s business and process. 6 In licensing, there is a one-time transfer of property or rights, but in franchising involves the ongoing assistance of franchiser. 7 A substantial measure of fee negotiation is there in licensing. Conversely, standard fee structure exists in franchising.
Why is franchising more stringent than licensing?
in general franchising is comparatively stringent than licensing because usually, franchisers set strict rules, regarding the operation of the business by the franchisee.
What is franchising strategy?
We define franchising as a strategy mainly used by service companies, that allows the franchisee to use a business model, processes or brand name for a fee, to conduct business, as an independent branch of the parent company (franchisor).
What are the advantages of licensing?
The greatest advantage of licensing model is that the licensee bears the developmental cost and the risk associated with launching foreign operations. In the sphere of high technology, many companies provide technical know-how through this arrangement like Ranbaxy Laboratories Ltd. is in search of partners, for out-licensing its diverse technologies such as respiratory, urology, etc. However, sharing technological know-how with foreign companies is a bit riskier for technology-based companies.
What does a licensor do?
The licensor has control on the use of intellectual property by the licensee, but has no control on the licensee's business. Franchisor exerts considerable control over franchisee's business and process. Involves one time transfer of property or rights. Needs ongoing assistance of franchiser.
What is licensing in business?
Meaning. Licensing is an arrangement in which a company (licensor) sells the right to use intellectual property or produce a company's product to the licensee, for royalty.
How to enter a foreign market?
The five major ways of entering a foreign market are exporting, licensing, franchising, forming joint ventures or establishing a wholly owned subsidiary.
What is Franchising?
Franchising is a business agreement between a franchisor and a franchisee. A franchisor is a business owner. The franchisor sells the rights to their brand, including products and services, intellectual property, and more. A franchisee who will open a separate branch under this trademark is, in fact, a clone of the original business.
What is Licensing?
License refers to a commercial agreement entered into between two parties in which one company authorizes the other to use its intellectual property for a specified period and under specified conditions, which is possible through licensing. This will include the company’s manufacturing process, copyrights, trademarks, patents, technology, etc.
Franchising vs Licensing – 8 Major Differences
The licensing process is governed by a licensing agreement, which includes a one-time transfer of ownership or rights for a fee. In most cases, licensors do not provide technical support or assistance.
The Bottom Line
When deciding what’s right for your business and comparing franchising to licensing, you must consider the needs and goals of your business.
What is a franchise?
A typical franchise includes rights to Trade Mark, trade names, logos, patents, trade-secrets and know-how of a business. It includes a license to use the business system, an obligation to share developments and improvements, and the right for the franchisor to determine how the business operates. These can be divided into the “common name leg,” which gives trademark permission, the “fee leg,” stating how much must be paid to begin operations, and the “operations and marketing leg.” All internal systems must be standardized inside the franchise. They take longer and cost more to set up than licenses.
Why do people own franchises?
Owning a franchise allows an individual to be self-employed while also investing in a proven system with training and support. It brings a ready-made customer base and often comes with client listings. There is a reduced risk of failure, on-going research and develop, and a semi- monopoly in a certain territory.
What is franchising business model?
In a franchising model, the franchisee uses another firm's successful business model and brand name to operate what is effectively an independent branch of the company. The franchiser maintains a considerable degree of control over the operations and processes used by the franchisee, but also helps with things like branding and marketing support that aid the franchise. The franchiser also typically ensures that branches do not cannibalize each other's revenues.
Why is franchising covered by securities law?
Franchising is covered by securities law because the franchiser controls how the franchisee conducts business. Therefore the franchiser controls whether or not the franchisee makes money. So the government requires franchises to be registered and for franchisers to disclose all risks to potential franchisees.
What is a licensing model?
Under a licensing model, a company sells licenses to other (typically smaller) companies to use intellectual property (IP), brand, design or business programs. These licenses are usually non-exclusive, which means they can be sold to multiple competing companies serving the same market. In this arrangement, the licensing company may exercise control over how its IP is used but does not control the business operations of the licensee.
How many legs does franchising have?
The FTC (Federal Trade Commission) definition of franchising consists of three "legs":
What is a license for a business?
A license allows the licensee to use, make and sell an idea, design, name or logo for a fee. They are advantageous for licensors because they allow them to expand their business’ reach without having to invest in new locations and distribution networks.
What is the difference between a franchise and a license?
On the most basic level, the difference between a franchise and a license is the amount of support you can expect to receive. A franchised system will provide you with support in site selection, training, marketing and much more, whereas a licensing agreement provides you with little to none of that.
What does it mean to franchise a business?
When you franchise, you get the benefit of brand recognition, but also a lot of support in the running of the business within a set system. If you have your own business already and decide to join a franchise, this will mean giving up control of how you currently run your business.
When do businesses start franchising?
Businesses usually start franchising once their business models have been perfected and proven to make money and their brands have at least some regional recognition. So, not only do you get to leverage the brand’s name, but you also get access to all its support systems in exchange for a fee.
Is it cheaper to get a license or a franchising agreement?
A licensing agreement will be cheaper than entering into a franchising agreement. However, since you get little to no support when running a business with a licensing agreement, you will be responsible for all other costs associated with the business, which would normally be included in a franchising fee.
Can franchising agreements be drawn up?
While licensing agreements can be drawn up and put in place quickly and for little cost to a brand, franchising agreements take a lot more work. Which one works best for you will depend on how much control over the running of your business you want to retain and how much assistance you want.
Is franchising legal in Canada?
There are specific franchising laws in place in six provinces in Canada to protect franchisees. Licensing agreements are not covered by these laws, although sometimes a licensing agreement can actually end up being viewed legally as a franchising agreement. Here at FranNet, we firmly believe franchising is the way to go.
What is Franchising?
Do you remember the show Undercover Boss? In the show, owners of businesses went into their stores pretending to be a new employee to learn what goes on daily. Throughout the show, get valuable insight into what their employees and business need to succeed. In a handful of episodes, these owners were actually Franchisors.
What is Licensing?
If you go into a store like Dick’s Sporting Goods, you’ll see brand-name apparel splashed throughout the store. Nike, Under Armour, Adidas, and the like are promoted in different spaces. Stores like Hallmark and Target partner with Disney to create a unique product to showcase. This is licensing.
Let MVision Guide You
In summary, if you have a business that you’re looking to grow, you can create more buzz by licensing with highly marketable brands. On the other hand, if you’re looking to grow as a business owner and run a business, it’s worth looking into a franchise opportunity.
