It involves finding franchisees with the skills necessary to operate branches of the same business. Mergers and acquisitions are common in the business of franchising whether acompany is acquiring another franchise or being acquired itself. Whats the difference between a licence and franchise. What is the difference between franchising and licensing. A franchise is an extension of an already existing brand or business that wants to. Click here to request our free onehour webinar, alternatives to franchising. In a licensing business model, the licensor does not exert control over the.
The obvious advantages of licensing over franchising include reduced legal costs, reduced accounting and auditing costs, no registration and approval of the license program with any state, and quicker entry into the marketplace. Franchise systems use a branded system of distribution. This article describes some of the reasons that companies would be interested in acquiring franchise opportunities or in being acquired, as well as some tips for what companies should look for when. Aug 12, 2017 key differences between licensing and franchising.
Its easy to become confused between franchising and licensing because on the surface they sound remarkably similar. Elements of a franchise a franchise has been described as a license on steroids. Running a franchise takes some business acumen to make. Many business owners choose to implement a licensing agreement arrangement to expand their business. In order to understand the difference, it is necessary to understand exactly what a licence and a franchise are. This is because licensing is not subject to the ftc franchise rule. There is not much of a relationship and the licensee just purchases the products and sells them on his own. We would like to take a minute to answer a very common question often asked. Unclear about the differences between licensing and franchising. Franchising might be right for your business, but it is not your only option.
You supply the business model, and you can define the territory in which any given franchisee can operate. Dec 15, 2014 difference between licensing and franchising the hallmark of a franchise is the nature and extent of the control that a franchisor exerts over the operation of a franchisees business. What is the difference and how do you know if franchising vs. Licensing is an arrangement in which a company licensor sells the right to use intellectual property, or produce a companys product to the licensee, for a negotiated fee i. Often, the difference between a licence and a franchise comes down to whether. After having clarified what these two concepts actually mean, one can also understand how licensing and franchising differ. New deals are being negotiated and inked every day. Now that you understand the difference between franchising and licensing its time to decide where your priorities fall for your business.
If the answer is yes, then you have entered into a franchise agreement. The most distinctive feature of a franchise agreement is that a franchisor exercises significantly more control over franchisees than a licensor. On the most basic level, the difference between a franchise and a license is the amount of support you can expect to receive. Difference between licensing and franchising the tasa group. Licensing is beneficial in monetary terms as there are better margins for the licensee. One company has an opportunity to offer, and the other makes the investment in that opportunity by developing their own locally owned business. The difference between licensing and franchising is that licensing is a legal relationship that is limited in scope and relates only to the use of a trademark or technology, whereas franchising involves a relationship that goes beyond the grant of a license and includes a relationship of control where the underlying business is required to operate in accordance with designated systems and procedures. Mergers and acquisitions are a proven way to achieve rapid franchise growth. By contrast, starbucks has grown by opening its own branches. A franchise is a license, though you usually dont find someone so focused on language minutia that they make a big deal out of the distinction. At the franchise institute, we encourage people to consider the two options carefully before they. This webinar discusses in detail the various alternatives to franchising, their relative strengths and weaknesses, and their legal requirements.
Each model has its advantages and can offer an effective strategy for expansion. Both the positive aspects and the lacunas associated with licensing are substantially discussed further in this paper. For a company looking to expand, franchising and licensing are often appealing business models. Franchising vs licensing top 5 best differences with. What is the difference between a licence and franchise. When you franchise your brand or business, you retain an enormous amount of power.
Prepared by manu melwin joy assistant professor ilahia school of management studies kerala, india. Licensing and franchising can be done both as a business owner and as someone looking to enter a specific market. Apr 09, 2017 what is the difference between a licence and franchise agreement. Turning to licensing, one advantage of a licence is that it can be easier to manage than a franchise. There are, however, important differences between a licence and franchise agreement that you should understand. Franchising is a way to scale a business once it is successful and proven. Yet, these situations arise with considerable frequency. In general, a franchise is a business form where you pay a fee to the franchisors allowing you, the franchisee, to use their business logo, name, product, and business system.
Used by businesses across the world, these two models carry their own sets of advantages and shortfalls. The licensee also has more freedom to run their business their own way and, as a general rule, a licence arrangement is cheaper and easier to set up than a franchise concept and demands less in terms of time. This becomes a headache for a person as he faces stiff competition from others who are selling the same product. As a licensor your cost to set up a licensing program is the cost of a good attorney preparing a good master licensing document. May 12, 2010 this guide discusses some of the differences between a simple license and a franchise. This topic may spark some debate because, in the end, it really depends upon what you want out of the relationship. Jan 07, 2011 this becomes a headache for a person as he faces stiff competition from others who are selling the same product.
Determining the amount of control you want to have in a business is the key to choosing whether licensing or franchising is the right option for you. In franchising, the franchisor licenses its intellectual property to the franchisee. When you delve deeper, youll notice there are many key differences between the two, than can impact the manner in which your brand is used and how much control you have over it. What is the difference between franchising and licensing in.
Traditionally a business owner like you wants everybody to operate under. There are very subtle differences between a distributordealer relationship and a franchise relationship, and there are numerous instances where a purported distributordealer has been deemed to be a franchise. Difference between licensing and franchising praxis legal. Franchising vs licensing is often the tough question potential wouldbe business owners ask themselves, as both are popular business models. In exchange, the franchisee puts up the initial capital for the business, helps to promote the brand and pays a licence fee.
The difference between a license and a franchise is the degree to which you are willing to negotiate the individual elements of the license vs requiring that everyone agree to a standard. Licensing and franchising, what is the difference and does. February 9, 2010 min read opinions expressed by entrepreneur contributors are their own. Difference between franchising and licensing compare the. Both sell intangibles and both earn fees from those sales.
This guide discusses some of the differences between a simple license and a franchise. Differences between licensing and franchising marketinginsider. Another fundamental difference between franchising and licensing is the amount of control a franchisor holds over the franchisee. In franchising, you have to pay royalty to the company every time you make a profit while in licensing, you keep the profits for yourself.
Structuring licenses to avoid the inadvertent franchise by rochelle spandorf or any type of monthly fee based on gross receipts for the distribution or licensing rights. In a true license arrangement, a licensor is limited in the amount of initial and ongoing assistance it can provide to a licensee. Knowing the differences between franchising and multilevel marketing also called mlm or network marketing is important when youre choosing the best business model for your background, financing and longterm goals. However, some people still think that franchising and licensing are almost the same and have no specific difference. Franchising in the united states goes all the way back to benjamin franklin. In contrast, a licensing arrangement allows a licensee considerable freedom in the operation of his or her business. What is the difference between a licence and franchise agreement. While they may mistakenly be used interchangeably they are two distinct concepts and this article will discuss their differences to assist you in deciding between franchising vs. Both can be a route to successful expansion, as an alternative to organic growth and with less risk. What is the difference between franchising and licensing in regards to expanding a business when it comes to expanding a business, whats. Difference between licensing and franchising with comparison. Whats the difference between licensing and franchising. We will now turn to the differences between licensing and franchising. While the above just scratches the surface in terms of the distinctions between licensing and franchising, hopefully it will provide you with a better understanding of the distance between the two.
Franchising and licensing are terms which describe very similar relationships but with stark differences. Certainly no licensor expected to end up defending franchise allegations. The major difference between franchising and licensing. Licensing, franchising, and other contractual strategies.
Jun 01, 2012 ifranchise group ceo and franchise expert mark siebert helps you understand the definition of a franchise and distinguish it from a license. To understand the difference between licensing and franchising the starting point is to look at what each term means. What is the difference between a franchise and a licence. We have also advised both franchisees and licensees. Often we are asked what is the difference between a franchise and a licence. Franchising vs licensing difference and comparison diffen. The difference between licensing and franchising can be drawn clearly on the following grounds.
The difference between franchising and licensing may 20, 2015 by trembly law leave a comment if you are looking to buy a business, or youve got an existing business that is growing rapidly, youll want to understand the basics of franchising versus licensing. Structuring licenses to avoid the inadvertent franchise. What are the advantages and disadvantages of qsr franchising from the perspective of the. Dec 29, 2014 licensing and franchising are merely two of those options.
In franchising, there is a lot of support from the company to the franchisee in terms of advertisement and training whereas there is no such support in the case of licensing. In a nutshell, a franchise is a license wherein the licensor controls the licensee and benefits from that cont. Dont miss the news on any deal, whether its a strategic franchise company merger or an acquisition by a highrolling private equity firm. Licensing and franchising are sometimes used to mean the same thing, but there are differences. In a franchising model, the franchisee uses another firms successful business model and brand name to operate what is effectively an independent branch of the. Jan 05, 2017 licensing and franchising are sometimes used to mean the same thing, but there are differences. Learn vocabulary, terms, and more with flashcards, games, and other study tools.
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. Jul 10, 2017 franchising might be right for your business, but it is not your only option. But which model is better franchising vs licensing. Whats the difference between franchising and licensing. This article explains the key distinctions between a licence agreement and a franchise agreement. When trying to expand or leverage your successful business to further growth two models that are commonly used are franchising and licensing. The franchise company and management company have much in common. The term franchising is used to describe a wide variety of business systems which may or may not fall into the legal definition provided above. The difference between licensing and franchising is that licensing is a legal relationship that is limited in scope and relates only to the use of a trademark or. In franchising, the franchisee gets the right to display the same brand logo, trademark, name and image. Jan 16, 2017 now that you understand the difference between franchising and licensing its time to decide where your priorities fall for your business. It is a legal arrangement in which an organization licensor will be selling the intellectual property rights to the local company licensee for a royalty. Franchising vs licensing differences between franchising. The difference between franchising and licensing elite.
Royalty rate structure in case of franchising 141 the same model is usually applied to franchising c in other words, it is believed that the main bene. Licensing and franchising are merely two of those options. Difference between licensing and franchising the hallmark of a franchise is the nature and extent of the control that a franchisor exerts over the operation of a franchisees business. The basis of comparison between franchising vs licensing. First, its important to understand the difference between these two models. Many successful franchisees with a knack for turnarounds have acquired underperforming locations and turned them into. When you are ready to expand, you may investigate both licensing and franchising as possible directions for business growth, but it can get confusing as to how these options differ.
Differences between licensing and franchising marketing. It really depends on how much control you want to have over your operators. Nov 19, 2016 what is the difference between franchising and licensing. Jan 28, 2017 how do i know if i am licensing or franchising. Starting and running a small business can be challenging, so its important to determine what is best for you and your business. Franchising is merely the sharing of a brand between two independent companies. Franchising on the other hand is often confused with the term licensing. Mcdonalds is one of the best known examples of a business that has grown through franchising. Licensing and franchising, what is the difference and does it. The main differences are summarized in the following table. Indeed, to be a proper franchisee you are required to use their logo, name, product, and business system.
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