franchising vs licensing



Therefore the franchiser controls whether or not the franchisee makes money. This in return ensures Pizza hut that it can penetrate different markets without a compromise in quality of service and the franchisee, in turn, is benefitted by the economies of scale that comes with an already established brand. Franchising vs Licensing Advantages Disadvantages High Cost – The costs of purchasing a franchise can be very expensive. Licensing. Though both share similar advantages, licensing can be called a subset of franchising; i.e. Franchising VS Licensing: In the franchise model owner of the brand or any business transfers authority to another person. This is the second instalment of a series. February 9, 2010 min read Opinions expressed by Entrepreneur contributors are their own. But it is also important for aspiring entrepreneurs who are interested in purchasing a franchise or licensing a product. If you’re looking into franchise vs. license agreements, it’s probably because you’re looking into either building your business into a franchise business or loaning your brand to another company for use. Licensing Pros and Cons Pros. immediately comply with franchise laws, or (b.) Licensing. How Franchising vs. Franchising is covered by securities law because the franchiser controls how the franchisee conducts business. Which form is best would typically depend upon the nature of product/ service in question, the risk appetite of the licensee/franchisee, the existence of competition in the market & the potential to enter & sustain the market by a new player, the amount of investment involved, etc. Here we discuss the top difference between Licensing and Franchising along with infographics and comparison table. Franchising. The heavy initial investment by the franchisee to meet the quality standards of the franchisor. Both are effective means to rapidly grow an existing business, and both have certain benefits. To learn more about franchising your business, click here. Franchising is based on securities law while licensing falls under the purview of contract law. ; Licensing has a more flexible and straightforward agreement because it only covers one or a few protective marks. Licensing gives the licensee a right to operate in cooperation with a brand, gaining access to the brand’s intellectual property, brand, design, and business programs. Considering Licensing vs. This may make running a business with a licensing agreement and running a franchise … Here are three factors to help you determine how best to expand your business through franchising or licensing. But if you are starting a small business that is dependent upon selling products of a big company, there are two ways you can do it. These characteristics are the very reason why Pizza Hut/ Dominos cannot enter into a licensing agreement with an interested party & allow them to use its name to sell their own recipe of pizza. 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. Franchising is administrated by law sanctuaries while licensing is directed by agreement law. re-adjust the operations to comply with licensing laws and avoid franchise laws. Either strategy can result in an incredible return on your investment. Web. Unclear about the differences between licensing and franchising? While the two may appear to be relatively similar, stark contrasts exist. Failing to follow these requirements can open you up to the possibility of legal action by those you enter into agreements with and even worse with the government and regulatory agencies. Licensor, however, has no autonomy over the business of the licensor. Either you get a license to sell the products or services, or you become a franchise of the company. A popular debate among those seeking to expand their current business is the pros and cons of licensing and franchising. Franchising. A comprehensive difference is shown in the following table. Another example would be a clothing manufacturer like Life is Good licensing its designs and brand in a certain country to a local company. Licensing involves fewer requirements in that unlike franchising, there is no specific legislation setting out how you can and cannot deal with a licensee. In exchange, the licensor receives payments from the licensee. Risks of Becoming an “Accidental Franchisor” If a licence agreement is actually a franchise agreement, then the Franchising Code of Conduct will apply. Licensing Franchising As opposed to Licensing. Upon which the Licensee would contribute appropriate capital investments to set the business running in his\her localized location. are precious assets, which should not be shared casually, and should first be appropriately protected. To start at the beginning, read part one here. A licensing arrangement can "slip into" an unintentional franchising structure if the licensing contracts are drafted poorly or if the licensor inappropriately controls the business operations of the licensee. For a company looking to expand, franchising and licensing are often appealing business models. The licensee is governed by the licensor’s terms of use as prescribed in the licensing agreement for the licensed product. Franchising is governed by an elaborate agreement specifying the responsibilities & duties of both the parties involved. Licensing does not require registration, whereas registration is a must in the case of franchising. These two jargons are usually synonymously used while marketing or selling a product whose brand value is not typically owned by the seller; however, there is a very fine line of difference between these two modes of business. 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 of a business on behalf of the franchiser in … It is really a great feeling to be changing over from an employee to an owner. Franchising vs. Licensing only gives us access to a particular protected trademark, and nothing more. Considering Licensing vs. Getting license of an Intellectual property provides you no operational rights. A license simply provides an individual or company with the right to use licensed material or to do something that would otherwise be considered illegal. This is particularly common with intellectual property. The licensor may have a say in how the intellectual property is used but not how the licensee operates their business. Franchising is more like a … 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. To understand Licensing, let us take the example of Walt Disney. And a licensee has more freedom to run his or her business when it comes to marketing and sales. Key Differences between Licensing and Franchising. licensor does not have control over licensee, The Franchisee’s goods and/or services are to be offered and sold under the trademark of the Franchiser, The Franchiser requires the franchisee to make a minimum payment of $500 or more, and. Filed Under: how to franchise Tagged With: definition of license, franchise or license, franchising, franchising vs licensing, franchisor, license my business, license or franchise, licensing versus franchising, what is licensing The main differences are summarized in the following table: Franchising Both licensing and franchising are legal relationships, that must follow laws in order to be used to develop and expand your business. Complete business package (including technical know-how) will be shared with the franchisee. When it comes to licensing agreements, the licensor gives the licensee the rights to sell goods, use patented technology, or use a brand name or trademark. Franchising vs. In a franchise, the franchising fee would cover the lease and buildout, it would likely get you some national marketing from the brand and the franchise would likely have training for you and your staff. Post by Faai Steuer. Franchising is administrated by law sanctuaries while licensing is directed by agreement law. But there are still strict controls on … Franchising & Licensing - What are they? Neither franchising or licensing is easy. The franchiser also typically ensures that branches do not cannibalize each other's revenues. Generally situations, the terms licensing and franchising are applied interchangeably to determine a equivalent business relationship. In layman’s terms, this means that if a business wishes to expand through franchising, it must register in the appropriate jurisdictions and also incorporate certain information into its franchise agreement. A license agreement is essentially a “portion” of a franchise agreement. Post by Faai Steuer. However, they enjoy a lot more freedom than franchisees. When considering expanding a business both franchising and licensing are possible options. These licenses are usually non-exclusive, which means they can be sold to multiple competing companies serving the same market. When considering which model is likely to work best for your business needs, you will need to take into account both the nature of your business, and the degree of control that you feel you will need over your intellectual property and/or brand if it is to be used by other parties. Franchise Business contracts Securities transactions Intellectual property Trademarks Trade names Tangible assets of a business Business Consumer protection. Licensing is essentially how you exploit intellectual property. Franchisor gets access to the geographically diversified marketplace without compromising on brand value. On the most basic level, the difference between a franchise and a license is the amount of support you can expect to receive. Examples of franchises include McDonalds, Subway, 7-11 and Dunkin Donuts. There are many merchandises which bear these characters on it; like bags, cups, bottles, etc. What is the difference between licensing and franchising? Licensor does not have control over the ultimate use of its intellectual property rights. Franchising vs licensing your business; which is the best option? Licensing doesn’t have the same level of control, and the licensees determine their marketing system and the way they want to sell the products or services. There’s a good article about the franchise vs. license (franchising vs. licensing) topic on the Franchise Foundations website at: franchising vs. licensing (franchise vs. license) Article Going back to your question about 10-year vs. a 5-year term, the answer depends on the provisions of the contract. Written with franchisees in mind, Franchising USA is a valuable resource for legal and financial advice, marketing and business information, as well as franchise profiles and in-depth features. 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. A company’s decision regarding which arrangement to use to expand their operations into a new market depends on various factors, such as the kind of product/service they are seeking to expand, the competition in the market, the degree of investment involved, and so on. By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy, Cyber Monday Offer - All in One Financial Analyst Bundle (250+ Courses, 40+ Projects) View More, All in One Financial Analyst Bundle (250+ Courses, 40+ Projects), 250+ Courses | 40+ Projects | 1000+ Hours | Full Lifetime Access | Certificate of Completion, Ownership of the ultimate product is with the licensee, he only buys the right to use a certain patented / original product of licensor in exchange of royalty, Ownership of the business is with the franchisee, he purchases the right to run the same business on behalf of the franchisor in exchange of fees, Standard agreement governed by contracts law between the parties, Stricter compliance requirements governed by Companies laws & other federal laws of international business (if dealing with a party outside the country), Licensor gets Vertical integration in the market without. Mickey Mouse, on their products. 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. Franchising is a type of licensing arrangement. Licensing. Yamarie Grullon - June 28, 2019. This is mainly because of the way it’s structured in that the franchisor and franchisee work very closely together to manage and expand the business to various locations. Overall both forms are pretty safe & legit mode of doing business since it’s built upon the solid foundation of the brand value attached to the product and can be used as a Launchpad by any potential new entrant to gain access in an already saturated marketplace. Franchising vs Licensing: Choosing a Retail Model for Your Cannabis Business (Part 2) Retail Store. They are advantageous for licensors because they allow them to expand their business’ reach without having to invest in new locations and distribution networks. In exchange, the licensor receives payments from the licensee. A license is a limited legal relationship. In such a situation, the licensor needs to either (a.) Licensing vs. Login details for this Free course will be emailed to you, This website or its third-party tools use cookies, which are necessary to its functioning and required to achieve the purposes illustrated in the cookie policy. Either strategy can result in an incredible return on your investment. Franchising vs Licensing. A franchise is a more extensive legal relationship that includes a license. After having clarified what these two concepts actually mean, one can also understand how licensing and franchising differ. The reason you want to have pizza at these outlets can be; they are known for selling amazing variety & quality of pizza, they have made their mark in the industry by exclusively selling pizzas, they have their own signature dishes which no other pizza outlet in the market can provide, they enjoy a market reputation when it comes to pizza. Hence putting the above in a tighter perspective, we can define the terms as. The brand value which is built after years of struggle is at stake for these niche companies. Understanding the difference between franchising and licensing is important for business owners looking to expand their operations. One may be easier than the other, depending on who is looking, but the details of each of them make them complex. Licensing is typically used in cases where technology is being sold through a distribution system. Franchising vs Licensing. Unclear about the differences between licensing and franchising? To learn more about converting your license system to a franchise, click here. Registration of Franchise; Franchising: A franchisor must register the franchise with the Registrar of Franchises before he can operate the franchise business or make an offer to sell the franchise to any person. Either you get a license to sell the products or services, or you become a franchise of the company. Conclusion – licensing vs franchising. To learn more about licensing vs. franchising get the guide. Edit or create new comparisons in your area of expertise. Having certain key features of a franchise while passing off as merely a licensing agreement may lead to the arrangement being regarded as an unregistered and illegal franchise resulting in potential criminal penalties. Learn abut the key differences here. Compared with a franchisee, licensees usually don’t get training or support from the licensor, but licensing costs can be considerably less than those of a franchise. Only brand name will be shared with the licensor. ; now Walt Disney is not the sole manufacturer of this merchandise. There is no technical support or assistance provided by the licensor in most cases. 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. The smaller company pays the … Both can be a route to successful expansion, as an alternative to organic growth and with less risk. It brings a ready-made customer base and often comes with client listings. They pay monthly or some time yearly royalty to the brand owner its all depends upon the contract. The difference between franchising and licensing can be a fine one. Anyone selling a license should ensure that their Intellectual Property is protected by law and specify what rights it grants the licensee. There is a reduced risk of failure, on-going research and develop, and a semi-monopoly in a certain territory. Franchising vs Licensing. Hence they enter into a franchising agreement; wherein they allow other individuals to not only use their name but also learn the technical know-how, the art, skill & knowledge of making the product exactly the same way as they themselves would have in exchange for the royalty. Franchising: Which Path Is Right for You? You may also have a look at the following articles –, Copyright © 2020. We will now turn to the differences between licensing and franchising. Franchising is generally related to the service business, whereas licensing is normally associated with the production and marketing of goods. This has been a guide to Licensing vs Franchising. The brand has some significant control over the franchise also they gave the proper model to … Selling a disguised franchise as a “license” can be the most expensive mistake a company ever makes. In layman’s terms, this means that if a business wishes to expand through franchising, it must register in the appropriate jurisdictions and also incorporate certain information into its franchise agreement. Diffen.com. 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. Jeff Elgin. When buying a franchise, a businessman should look at balance sheets and bottom lines and compare it to similar franchises in similar areas. Both licensing and franchising are excellent ways to grow a business, but franchising is still the more popular option. Franchisee gets continual support from the franchisor to extend an already successful business. But which model is better – franchising vs licensing? Both models require that the franchisee/lincensee make payments to the original business that owns the brand or intellectual property. Licensing vs. Tweet . The Truth About Franchising vs. Franchising vs. Licensing Differ. There are a few licensing deals which are so similar to franchising that there is hardly any difference to make between both of them. The FTC (Federal Trade Commission) definition of franchising consists of three "legs": The definition is important because franchises are covered by securities law while licenses are covered by contract law. Licensing vs. Click here to request our free one-hour webinar, “Alternatives to Franchising.” This webinar discusses in detail the various alternatives to franchising, their relative strengths and weaknesses, and their legal requirements. After having clarified what these two concepts actually mean, one can also understand how licensing and franchising differ. Licensing. For franchisors, franchising allows them to expand their business for less investment than opening new locations themselves. They take longer and cost more to set up than licenses. 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. There is a huge difference between both franchising and licensing, but quite often it is difficult to differentiate between them. There are laws that govern the franchising model and define what constitutes franchising; some agreements end up being legally viewed as franchising even if they were originally drawn up as licensing agreements. Owning a franchise allows an individual to be self-employed while also investing in a proven system with training and support. 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. Differences between Licensing and Franchising. But if you are starting a small business that is dependent upon selling products of a big company, there are two ways you can do it. The relation between franchise vs licensing advantages disadvantages. They are not looking through the lens of an expert with alm… The main differences are summarized in the following table: Licensing is governed by a licensing agreement, which involves a one-time transfer of property or rights for a fee. a company using Microsoft Office on its computers. And that persons pay some amount according to the brand requirement. Conclusion – licensing vs franchising. Your brand, patents, know how, trademarks etc. Licensing. < >. Franchising vs Licensing: Choosing a Retail Model for Your Cannabis Business (Part 2) Retail Store. Franchising Vs. The degree of autonomy is very less for the franchisee in the operational matters of the business. The fee can range from $5,000 to $50,000 or more. Licensing: Advantages and Disadvantages A licensing agreement grants another company the right to manufacture and/or sell goods, apply a brand name or trademark, or use patented technology owned by the parent company. But which route is better for your business? This is the second instalment of a series. Franchising is not the same as licensing. Written with franchisees in mind, Franchising USA is a valuable resource for legal and financial advice, marketing and business information, as well as franchise profiles and in-depth features. A license allows the licensee to use, make and sell an idea, design, name or logo for a fee. Franchising vs Licensing. CFA® And Chartered Financial Analyst® Are Registered Trademarks Owned By CFA Institute.Return to top, IB Excel Templates, Accounting, Valuation, Financial Modeling, Video Tutorials, * Please provide your correct email id. A licensing agreement can be completed in a week. Franchising When it comes to licensing agreements, the licensor gives the licensee the rights to sell goods, use patented technology, or use a brand name or trademark. These licenses are typically non-exclusive so competing companies can serve the same market. 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. There is a difference between these two business models, but what exactly is that difference? In exchange, the licensee pays royalty fees to the licensor. 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. Diffen LLC, n.d. Franchising USA is a monthly digital publication bringing you all the latest news, expert advice, and information from the world of franchising. What is the change involving franchising and licensing? When considering which model is likely to work best for your business needs, you will need to take into account both the nature of your business, and the degree of control that you feel you will need over your intellectual property and/or brand if it is to be used by other parties. But which model is better – franchising vs licensing? Doing it right the first time will save money and significant legal headaches down the road. This Guide discusses some of the differences between a simple license and a franchise. Franchising is mostly related to service businesses like food chains, service centers of automobiles, etc. PUBLISHED October 5, 2020 - LAST UPDATED October 27, 2020. To start at the beginning, read part one here. Licensing is a broad term that businesses use for contracting purposes. Franchising vs. Franchise: A Very Quick Overview. Licensees also enjoy lowered risk because they're usually entering the marketplace with a known quantity and a built-in customer base. Whether you are licensing or franchising, the important thing is to start by protecting your IP. Franchising vs Licensing. Franchising is a much broader concept since it involves a greater degree of control by the franchisor. Franchising vs. licensing is a question we are asked all the times. From both a legal and business perspective, the franchise vs. license choice should be an easy one to make. Click here to request our free one-hour webinar, “Alternatives to Franchising.” This webinar discusses in detail the various alternatives to franchising, their relative strengths and weaknesses, and their legal requirements. However, franchising and licensing come from two distinct areas. 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 of a business on behalf of the franchiser in lieu of a fee where the processes are closely controlled by franchisor therefore it is generally seen that licensing is for products and goods whereas the franchising model is used more in service providing industry. Prior to moving forward with franchising a business or licensing a business it is important to understand the differences and how each may have an affect on you. Under a licensing model, a company sells licenses to other (typically smaller) companies to use intellectual property (IP), brand, design or business programs. Today we attempt to understand the differences between Licensing vs Franchising. The terms on which you grant licences or franchises need to be carefully considered. Tweet . If you are a business owner, you may want to license the use of your brand or products to another business in order to gain more exposure for your company and earn revenue on the side. PUBLISHED October 5, 2020 - LAST UPDATED October 27, 2020. Over the last few decades, franchising and licensing have become common expansion strategies for many business owners. But which route is better for your business? Licensing and franchising share a few similar advantages. In fact, they are paving the way for a future lawsuit. When you have a great business model, there are two powerful ways to see it reach its full potential: either franchising or licensing your brand. Franchising is generally related to the service business, whereas licensing is normally associated with the production and marketing of goods. These two terms are often confused with one another. Licensing and franchising can be done both as a business owner and as someone looking to enter a specific market. A license agreement drafted to disguise a franchise agreement may skirt the laws of the Federal Trade Commission briefly, but ultimately the facts will challenge its validity down the road. Let’s take a look. a typical franchising arrangement would involve numerous licensing agreements to transfer the use of intellectual property rights. Franchising is based on securities law while licensing falls under the purview of contract law. Anyone selling a franchise should be sure to protect their Intellectual Property and create comprehensive work manuals and maintenance programs. Next Article They should perform a name-brand availability search and investigate Intellectual Property issues such as patent ownership. When you are pondering the question of licensing vs. franchising, it is important to bear in mind the place of legal counsel. There is a reduced risk of failure, on-going research and develop, and a semi-monopoly in a certain territory. License vs. Franchiser exercise control over franchisee. Continued assistance and guidance must be provided by the franchisor to the franchisee. FRANCHISE VS. LICENSE 101 Both franchise and license agreements allow for established businesses to contract or license their brand for a separate party to run a similar business—in exchange for a fee and portion of the profits. The franchise’s costs typically vary according to the type of franchises that you buy. These licenses are typically non-exclusive so competing companies can serve the same market. Difference Between Licensing and Franchising. Franchisor exercises enormous control over the business of the franchisee in terms of quality of service provided, marketing & selling strategies, etc. Licensing refers to a relationship that licenses a name OR a system to a business partner who will have rights to distribute or do business with that system or trademark. Franchising vs. licensing are two different business development vehicles that both can yield rapid growth for your company. Licensing Franchising and licensing are means of expanding a business. ; Cons. It can also apply to the use of software, e.g. So, in fact, a franchise is licensing of a business format in a particular way. Examples of licenses include a company using the design of a popular character, e.g. Difference between Franchising vs Licensing. ( Established Entity ) for an agreed royalty franchise is licensing of intellectual property provides you no operational.! October 5, 2020 - LAST UPDATED October 27, 2020 - LAST UPDATED October 27 2020! Who is looking, but quite often it is really a great feeling to be similar! Use for contracting purposes licensing Advantages Disadvantages High Cost – the costs of purchasing franchise... Sure to protect their intellectual property issues such as patent ownership products & goods like software patented etc! Details of each of them franchising get the guide about converting your license system to a or. With franchise laws similar franchises in similar areas for your Cannabis business ( Part 2 ) Retail Store the option. Better – franchising vs licensing appropriate capital investments to set the business in. Advice, and should first be appropriately protected a monthly digital publication bringing you all the.. Casually, and a license should ensure that their intellectual property provides you no rights... The fee can range from $ 5,000 to $ 50,000 or more both can be sold to competing... Information from the world of franchising the first time will save money and significant legal headaches down the road make! 7 minutes read share: which proven business model would suit you?. Read Opinions expressed by Entrepreneur contributors are their own the quality standards the. One-Time transfer of property or rights for a fee when it comes to marketing and sales assistance,! Different rules and regulations food chains, service centers of automobiles, etc or will. Latest news, expert advice, and nothing more after years of struggle is at the,. Administrated by law and specify what rights it grants the licensee is governed by franchisor! Typically vary according to the brand value patent ownership with alm… what is the [ … ] licensing vs that... Mind the place of legal counsel up actually creating unintentional franchises licensor ’ s operation methods deals with products goods. More about licensing vs. franchising get the guide and bottom lines and compare it to similar franchises in similar.!, Trade names, logos, patents, trade-secrets and know-how of franchise... Person to person existing business, franchising and licensing. the terms licensing franchising! For aspiring entrepreneurs who are interested in purchasing a franchise should be sure to protect their property! Branches do not cannibalize each other 's revenues a more flexible and straightforward agreement because it only covers or. Different rules and regulations read share: which proven business model would suit you best for franchisee... By protecting your IP be appropriately protected ( Established Entity ) for agreed... With different rules and regulations terms are often appealing business models & comma ; you may also a! Franchises to be changing over from an employee to an owner to either ( a. are summarized the! Of licensing vs. franchising, the franchisee ’ s costs typically vary according to the service with! Vs. franchising get the guide licensor in most cases duties of both parties! A huge difference between both franchising and licensing come from two distinct areas either can. Contribute appropriate capital investments to set up than licenses property provides you no operational rights cases where technology being... Franchising are excellent ways to grow a business owner and as someone looking to expand, franchising and licensing two! You no operational rights are effective means to rapidly grow an existing business, franchising allows to... Or some time yearly royalty to the customers this guide discusses some of licensor... Less investment than opening new locations themselves or some time yearly royalty the!

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