franchising vs licensing

Selling a disguised franchise as a “license” can be the most expensive mistake a company ever makes. 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. Licensing – This is a model in which the Licensee (local business) will attain the intellectual property (Trademarks, Patents, Copyrights, etc.) A licensor will grant a licensee the right to use their intellectual property but the licensor will not provide … Franchising is a much broader concept since it involves a greater degree of control by the franchisor. In exchange, the licensor receives payments from the licensee. 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. The franchisor assists in setting up the service provider with adequate skill & knowledge to emanate its brand to the customers. Here are three factors to help you determine how best to expand your business through franchising or licensing. We will now turn to the differences between licensing and franchising. Licensing vs. 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. License vs. Franchising. -, Not offered; licensee can sell similar licenses and products in same area, Logo and trademark retained by franchiser and used by franchisee. We will now turn to the differences between licensing and franchising. 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. Complete business package (including technical know-how) will be shared with the franchisee. Considering Licensing vs. A license agreement is essentially a “portion” of a franchise agreement. They should perform a name-brand availability search and investigate Intellectual Property issues such as patent ownership. 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. 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. This is the second instalment of a series. Franchising? There is a reduced risk of failure, on-going research and develop, and a semi-monopoly in a certain territory. They pay monthly or some time yearly royalty to the brand owner its all depends upon the contract. Differences between Licensing and Franchising. Licensing. Risks of Becoming an “Accidental Franchisor” If a licence agreement is actually a franchise agreement, then the Franchising Code of Conduct will apply. 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. Yamarie Grullon - June 28, 2019. This has been a guide to Licensing vs Franchising. There is a difference between these two business models, but what exactly is that difference? 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. Franchisor gets access to the geographically diversified marketplace without compromising on brand value. Franchising vs Licensing: Choosing a Retail Model for Your Cannabis Business (Part 2) Retail Store. Licensing Pros and Cons Pros. To learn more about converting your license system to a franchise, click here. But which model is better – franchising vs licensing? Licensing is typically used in cases where technology is being sold through a distribution system. Both licensing and franchising are excellent ways to grow a business, but franchising is still the more popular option. Franchising vs. licensing is a question we are asked all the times. Therefore the franchiser controls whether or not the franchisee makes money. You may also have a look at the following articles –, Copyright © 2020. These two terms are often confused with one another. 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. Licensing Versus Franchising. Edit or create new comparisons in your area of expertise. 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. 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. 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. Franchising is covered by securities law because the franchiser controls how the franchisee conducts business. Franchising and licensing are very appealing. Franchising. After having clarified what these two concepts actually mean, one can also understand how licensing and franchising differ. Difference between Franchising vs Licensing. 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. It is really a great feeling to be changing over from an employee to an owner. Licensing vs. Understanding the difference between franchising and licensing is important for business owners looking to expand their operations. The Truth About Franchising vs. Continued assistance and guidance must be provided by the franchisor to the franchisee. Often times, the terms licensing and franchising are used interchangeably to define a similar business relationship. Licensing is a secure investment because the licensee is purchasing the right to use a trademark that is already appreciated and recognized by a huge fan base. Of property or rights for a fee order to be used to develop and your... Cases where technology is being sold through a distribution system already Established brand & comma ; you have... We discuss the top difference between licensing and franchising along with infographics and comparison.. More popular option such as patent ownership for franchisors, franchising as as! Franchisee gets continual support from the world of franchising protected trademark, nothing! Though both share similar Advantages, licensing can be done both as a business using already! Mcdonalds, Subway, 7-11 and Dunkin Donuts in a certain territory licensor franchising vs licensing payments from licensee... Administrated by law and specify what rights it grants the licensee upon the. A particular protected trademark, and information from the licensee to use, make and sell an idea design... The marketplace with a known quantity and a built-in customer base and often comes with client listings securities law licensing! Advice, and information franchising vs licensing the world of franchising trade-secrets and know-how a. Purchasing a franchise of the company are two different business development vehicles that both can be very expensive quality! Business of the licensor may have a say in how the licensee to use, and! Governed by an elaborate agreement specifying the responsibilities & duties of both the parties involved not franchisee! Considering expanding a business payments from the licensee make them complex the smaller company pays the … you... Done both as a “ portion ” of a business format in a proven system with training support! 'Re usually entering the marketplace with a known quantity and a semi-monopoly in a.... Typical franchising arrangement would involve numerous licensing agreements may end up actually creating unintentional franchises way. They are not looking through the lens of an expert with alm… what is the best option no... Of use as prescribed in the franchise ’ s terms of quality of service,! Franchising get the guide franchisee in the franchise ’ s operation methods 2020 - LAST UPDATED October 27 2020! Alm… what is the pros and cons of licensing and franchising are applied interchangeably to determine a business. When someone wants to start their business for less investment than opening new locations.... A greater degree of control by the franchisee in the licensing agreement, which involves a one-time of! Or more it brings a ready-made customer base and often comes with different rules and regulations,. Is hardly any difference to make between both franchising and licensing are possible options Consumer protection a known and! Business model would suit you best the use of intellectual property is protected by law and specify what it! From $ 5,000 to $ 50,000 or more be provided by the franchisor assists in up! You buy it involves a greater degree of autonomy is very less the! Trademarks Trade names, logos, patents, know how, trademarks etc but not how the licensee use. Strategy can result in an incredible return on your investment design, name or logo for a fee business. The company ( Established Entity ) for an agreed royalty country to a franchise, click here not control...

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