Pros of licensing
- A licence can be easier to manage than a franchise
- The licensee has more freedom to run their business their own way
- As a general rule, a licence arrangement is cheaper and easier to set up than a franchise concept, and less demanding in terms of ongoing management time
What is the difference between franchising vs licensing?
Another difference between franchising vs. licensing is the amount of control that can be exerted by the seller over the buyer. 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.
Is licensing or franchising the best way to start a business?
Some business opportunities offer the best of licensing and franchising. They offer tools or training to help you start your own business, but usually at a lower cost and with fewer restrictions than a franchise. Many vending companies, for example, offer support and training but have no royalty or franchise fees.
What are the advantages of franchising a business?
For franchisors, franchising allows them to expand their business for less investment than opening new locations themselves. Other advantages of franchising include the fact that you know what the business looks like when it's successful, and you can often take advantages of economies of scale in your relationships with vendors and suppliers.
Are there any cons to franchising or licensing models?
But having discussed the above, the Franchising or Licensing models are not without their cons. There are numerous cases in which a Franchising or Licensing would be starting an identical product or business that could become a tough competitor to the very Licensor or Franchisor itself.
What is the difference between a franchise and a license?
However, a franchising agreement pertains to a business’s entire brand and operations, while a licensing agreement only applies to registered trademarks. Franchises typically work best for service-based businesses, while licenses are more conducive to product-based businesses. A licensee has more control over how they run their business compared to a franchisee, whose business will be dictated by the franchise owner (franchisor). However, a franchisee will also receive significant guidance and training from the franchisor.
What is franchising a franchise?
Franchising is a deeper, more complicated business relationship and agreement than licensing. A franchisor retains control over how their brand is used and how each franchise under their name is operated.
What is franchising?
A franchise is a business agreement between a franchisor and a franchisee. The franchisor is the owner of a business. The franchisor sells the rights to their brand — including products and services, intellectual property and more — to a franchisee, who will open up a separate branch under that brand’s name, which is essentially a duplicate of the original business.
Why is franchising important?
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.
What are the pros and cons of becoming a franchisee?
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. Franchises come with the bonus that they’re already a proven business model with a pre-established customer base.
What is a licensee?
Licensing, on the other hand, is a limited, legal business relationship where a specific party is granted rights to use certain registered trademarks of a brand. The business relationship is between the licensor (the one who owns the trademarks) and licensee (the one who is granted rights to use them).
How much does it cost to franchise a business?
In comparison to a license, a franchise will seem much more expensive and complicated. Initial franchise fees can cost between $10,000 and $50,000 — then there are the ongoing fees to keep in mind. This might seem exorbitant, but it’s important to remember that you’re getting access to an entire business. 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.
What is franchising in business?
Franchising is a method used by existing brands to distribute their products or services more widely. In a typical franchise structure, the franchiser establishes a brand’s trademark and business system while the franchisee pays a royalty for the right to do business under the franchisor’s name and processes.
What are the considerations for a business owner?
Other considerations include your personality and management style, how involved you want to be in the day-to-day management and operation of the business, your confidence in taking care of tasks such as marketing, as well as upfront investment and ongoing payments.
Is it good to franchise a business?
Franchising is right for you if you want a “plug-and-play” business model with a proven record of success. You can expect more assistance in setting up the business and more ongoing support, such as training, product development and business system upgrade from a franchiser so you can focus on running your business. Some franchises even have a sales team to acquire clients and send them to franchisees.
Is franchising a long process?
However, franchising can be a long process and the typical franchise structure offers less flexibility. If you prefer a greater degree of control over your business, licensing may be a better option. The legalities of licensing are often less complex and have fewer requirements so you can get up and running faster.
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.
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 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 ...
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 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 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 the difference between franchising and licensing?
For example, licensing refers to the legal right to use a specific limited asset, such as a trademark, technology, or formula. A franchise, on the other hand, duplicates a company’s entire business model, including how it is operated and what specific products and services it provides, including brands and trademarks. With licensing, a company limits only how a licensed asset is used, but with franchising, the company determines how the franchisee will operate the business in total.
What is franchising in business?
A franchise, on the other hand, duplicates a company’s entire business model, including how it is operated and what specific products and services it provides, including brands and trademarks. With licensing, a company limits only how a licensed asset is used, but with franchising, the company determines how the franchisee will operate ...
What rights do franchisees have?
Franchisees receive not only the rights to use a company’s branded assets, but also have access to the business’s operations protocol, including marketing, implementation support, and training, on an ongoing basis.
Is licensing a standalone concept?
In comparison to franchising, licensing is a standalone concept. You pay royalties for the rights to use a licensed asset, but it is up to you how it factors into your business plan. Licensing may work well for an existing business wanting to integrate a new idea or product but may be more challenging for a startup with little knowledge ...
Is franchising a federal or state law?
While licensing is a matter of standard contract law, franchising has considerable federal and state government oversight intended to protect the partners in what is a complex relationship. In fact, federal law sets the stage for whether a business arrangement is defined as a license versus a franchise. By law, a business is legally considered a franchise of a company if the following three criteria are present: the business is operating under the company’s name or trademark; the business has contractually agreed to follow the company’s prescribed, uniform system of running the business; and the payment of an upfront fee has been made from the business to the company.
What is the difference between a franchisee and a licensee?
Applicability – Franchisee is applicable to those local organizations that do not have the sophisticated technical and operational infrastructure to manage the business. Here the parent company (Franchisor) will give the appropriate guidance and territorial monopoly. Whereas in Licensing, the Licensee (Local Company) needs to have sophisticated technical and operational facilities because the Licensor can sell his IP to any number of people, and you should have the individual capacity to compete with them all.
What is licensing in business?
Licensing – This is a model in which the Licensee (local business) will attain the intellectual property (Trademarks, Patents, Copyrights, etc.) of the Licensor (Established Entity) for an agreed royalty. Upon which the Licensee would contribute appropriate capital investments to set the business running in hisher localized location. Example – Ranbaxy Laboratories. Franchising – It is defined as a specific business model in which wherein the Franchisee (local person) attains the business model, processor brand name, for an agreed fee for purpose of functioning as an independent branch of the Franchisor (original organization). Example Mc Donald, Burger King, etc.
What is the term for the acquisition of intellectual rights and privileges but not subject to the managerial directions from the Licensor?
Control by the Parent – Licensing agreements would include the acquisition of intellectual rights and privileges but not subject to the managerial directions from the Licensor to a Licensee. In the instances where the managerial directions, supervision, norms, and regulations from the Parent is binding on the host, it is called Franchising.
What is the fundamental concept of licensing?
Fundamental Concept – The main concept in Licensing is an ability to sell the Intellectual Property or technological know-how to any number of Licensee Companies by the Licensor Company for an agreed royalty (on sale). Whereas in Franchising, the Franchisor will, in effect, launch an independent branch with one specific Franchisee (local company) ...
What is a franchisor?
Concept. It is a legal arrangement in which an organization (Licensor) will be selling the intellectual property rights to the local company (Licensee) for royalty. It is a Legal system where the Franchisor (Original Company) will permit Franchisee (Local Company) to use its business model and brand for a specific fee like an ...
Does a licensor give training?
Services and Training – A licensor normally does not give services and training to the Licensee post the commencement of the agreement, while a Franchisor is bound to provide services and Training to the franchisee as per the agreed understanding.
Is there an international law for franchising?
As of now, an international law specific to Franchising has not been made. Sphere of Control. The Licensor may entail some control on the intellectual property given to the Licensee but have no control in the particulars of his business operations.
Why is franchising important?
For franchisors, franchising allows them to expand their business for less investment than opening new locations themselves. Other advantages of franchising include the fact that you know what the business looks like when it's successful, and you can often take advantages of economies of scale in your relationships with vendors and suppliers.
What are the downsides of franchising?
The downside of franchising lies mainly in the loss of control you have as a business owner since the franchisor makes a lot of the decisions for you. Of course, some business owners consider this narrowing of control a relief and therefore an advantage. Also, the profits tend to be slightly lower than if you had your own business, because as a franchisee, you typically have to pay franchise fees to the franchisor.
What is the most reputable business in the licensing world?
One of the most reputable businesses in the licensing world is Disney . The Disney Consumer Products Branch has licensed movie images and characters, including the famous Disney Princesses, to companies selling everything from home furnishings to personal care products, with plenty of apparel thrown into the mix, ranging from T-shirts and kids' pajamas to wedding dresses.
Why are licenses beneficial?
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 happens when you license a business?
When you license a business, you sell the rights to use your company's products and trademarks in exchange for some version of royalties , which are usually an agreed-on percentage of the licensee's sales. The licensor retains ownership of the goods or intellectual property involved.
What is franchise business?
A franchise is an extension of an already existing brand or business that wants to expand. It is an asset of your brand governed by the federal securities law.
Is a licensing agreement easier to finalize than a franchise agreement?
Are you looking for an easier entry into business, with fewer requirements? If so, a licensing agreement is typically much easier to finalize than a franchise agreement.
Why is franchising important?
The franchisor often helps ensure at least a certain level of success for their franchisees by not allowing multiple franchises to be open in the same areas, etc. The franchise business model does not, however, provide the same level of autonomy as a licensing agreement.
What is franchising in business?
In a franchise, the franchisor is involved with the day-to-day business operations of their franchises, such as personnel policies, accounting practices, as well as the goods and services that can be provided by the franchise.
What is a license agreement?
Generally, with a license agreement, some of the key points include: The licensee is being given permission to use the licensor’s trademarked logos and such on the goods they are selling. The licensee pays the licensor for the rights to that intellectual property.
What is the primary concern of a licensor?
If you are a licensor, your primary concern is ensuring that your intellectual property is being used properly, beyond that, you have very little control. As a franchisor, you maintain a lot of control over your brand.
