What is most important to you as a small business owner. Franchising, however, encompasses the whole business format. The international franchise association ife defines a full business format. Differences between licensing and franchising marketinginsider. 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. 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 company. Franchising licensing licensing is lower cost and can be done quickly. Here is a quick look at the differences between licensing and franchising to provide a starting point in determining which option is best for your business. Click here to request our free onehour webinar, alternatives to franchising. Franchising is based on securities law while licensing falls under the purview of contract law. Dec 29, 2014 although there are pros and cons to growing your business through either licensing or franchising, your business may be better suited for one route over the other. If you are thinking about expanding your operation through franchising, licensing may be an alternative because 1 it is substantially less expensive, and 2 it takes about ten to fifteen business days to complete rather than months and months for.
There is a world of difference between licensing and franchising but its not. Indeed, to be a proper franchisee you are required to use their logo, name, product, and business system. This webinar discusses in detail the various alternatives to franchising, their relative strengths and weaknesses, and their legal requirements. But this is not the case, as franchising is totally different to licensing.
Either strategy can result in an incredible return on your investment. The difference between licensing and franchising can be drawn clearly on the following grounds. For a company looking to expand, franchising and licensing are often appealing business models. Certainly no licensor expected to end up defending franchise allegations. Franchising plus encourages business format franchising where. The broad scope of the franchise laws may apply to a distributorship or license relationship resulting in an unwitting breach by a business owner of federal or state franchise and business opportunity laws. Gappa president, management 2000 for the past twentyfive years the key concepts of franchising have been under going evolution and transformation. When trying to expand or leverage your successful business to further growth two models that are commonly used are franchising and licensing. Now that you understand the difference between franchising and licensing its time to decide where your priorities fall for your business.
In a franchising agreement, the franchisor also offers knowhow and access to a. The franchiser maintains a considerable degree of control over the operations and processes used by the franchisee, but also helps. Aug 07, 2015 robert kiyosaki 2019 the speech that broke the internet keep them poor. Franchising vs licensing which is right for my business. Licensing how does franchising compare with licensing.
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. The licensor owns the asses and the licensee has the rights to use the assets. Licensing is the practice of legally allowing the use of assets most commonly intellectual property rights owned by one business to another. Its more than just a logo or customized font or color,but at the end of the day what is a brand.
No investor paid cash to the licensor up front structuring licenses to avoid the inadvertent franchise by rochelle spandorf. We get this question often and it is critical to understand the differences. Franchising vs licensing difference and comparison diffen. Under the federal trade commissions disclosure requirements and prohibitions concerning franchising and business opportunity ventures, code of federal regulations, title 26, chapter 1, subchapter d, part 36, better known as the ftc franchise rule, anyone who offers, sells or distributes goods. What is the difference between franchising, distribution, ag. Licensing, on the other hand, allows a licensee to pay for the rights to use a particular trademark. 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. 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. Modes of foreign market entry licensing vs exporting. Aug 12, 2017 key differences between licensing and franchising. In exchange for these rights and services, the franchisor receives an upfront fee for the rights to a geographic area, as well as royalties based on sales. The hallmark of a franchise is the nature and extent of the control that a franchisor exerts over the operation of a franchisees business. Licensing and franchising, what is the difference and does it.
We will now turn to the differences between licensing and franchising. A license arrangement is primarily composed of 2 elements. Management 2000 has had the good fortune of being in the middle of those developments. Cost when you license a business, there are no franchise fees, marketing fees or royalties. Difference between licensing and franchising praxis legal. Whats the difference between franchising and licensing. Brouthers and others published international franchising and licensing find, read and cite all the research. International franchising and licensing request pdf researchgate. Franchising on the other hand is often confused with the term licensing. 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. What is the difference and how do you know if franchising vs. This package can contain items such as trade marks and trade names.
Yet, these situations arise with considerable frequency. Under the franchise laws before you offer or sell a franchise or accept any funds, you must first issue an fdd, properly disclose it, and, register and file with the. In other words, this type of franchising provides the franchisee with a complete business format including license for a trade name, the product or service to be marketed, the physical plant, methods of operation, a marketing strategy plan, a quality control. In laymans 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. Difference between licensing and franchising praxis. Franchising vs licensing compare contrast business model. Companies try to move beyondhaving just another product or service,and say they have a brand. In franchising, the franchisor licenses its intellectual property to the franchisee.
Exporting brands through innovative licensing and franchising. Statistics show that licensing activity is at an alltime high. The main differences are summarized in the following table. Many business owners choose to implement a licensing agreement arrangement to expand their business. Any unpleasant surprises due to changes in the business format. 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.
Starting and running a small business can be challenging, so its important to determine what is best for you and your business. Join doug ladd for an indepth discussion in this video, licensing or franchising, part of marketing foundations. Youll pay an upfront fee to purchase the license, but recurring costs will be. A prominent example of dual distribution includes business format franchising, where firms, the. 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 the positive aspects and the lacunas associated with licensing are substantially discussed further in this paper. Licensing and franchising by providing some practical examples from. Unclear about the differences between licensing and franchising. Introduction to franchising small business administration.
Jul 10, 2017 franchising might be right for your business, but it is not your only option. What are the pros and cons on licensing vs franchising. This is a question that a lot of business owners and aspiring entrepreneurs ask themselves as they try to figure out which business model may be best for them. Licensing even though from the looks of it, a licensing opportunity seems to be less advantageous as compared to a franchising business, licensing has its advantages as well. In our view, full business format franchising does exactly what it says on. When you have a great business model, there are two powerful ways to see it reach its full potential. Structuring licenses to avoid the inadvertent franchise. 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 franchise is the agreement or license between two legally independent parties which gives.
Both can be a route to successful expansion, as an alternative to organic growth and with less risk. One advantage is that licensing costs much lesser in terms of the initial investment and ongoing charges. But which model is better franchising vs licensing. Franchising vs licensing differences between franchising. Difference between franchising and licensing difference. However, licensing a business is generally far less expensive than buying a franchise. This method allows to create a revenue stream and capture a strong market in little time and. This allows the small guy access to a successfully established product with a 30 year track record. Difference between franchising and licensing compare the. What is the difference between licensing and franchising. Risks of becoming an accidental franchisor if a licence agreement is actually a franchise agreement, then the franchising code of conduct will apply. Business format franchising accounts for most of the explosive growth in franchising that has occurred in the past five decades.
This is because licensing is not subject to the ftc franchise rule. In contrast, a licensing arrangement allows a licensee considerable freedom in the operation of his or her business. Even if you dont control most aspects of the franchisees business, if you suggest most of the above, then you are likely franchising rather than licensing your business. Holmes northern california office s outhern california office 555 chorro street, suite d2 6621 pacific coast hwy. While there are certain advantages to embarking on a license program rather than a franchise program, there may also be the risk that the license program will be construed to be an illegal franchise if challenged by an unhappy licensee. This topic may spark some debate because, in the end, it really depends upon what you want out of the relationship. In laymans terms, this means that if a business wishes to expand through franchising, it must register in the appropriate jurisdictions and also incorporate. Franchising and licensing are terms which describe very similar relationships but with stark differences. However, some people still think that franchising and licensing are almost the same and have no specific difference. 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. Which is the best mode for business available at my assignment services and also get the perfect solution for your problems. Licensing comprises of franchising, contract manufacturing as well as turnkey contracts. Posted on july 10, 2017 january 15, 2020 by operations. Licensing or franchising linkedin learning, formerly.
Robert kiyosaki 2019 the speech that broke the internet keep them poor. Difference between licensing and franchising with comparison. When franchisor sells the complete business format and system of hisher product to the franchisee, it is called pure franchising. Why do people work so hard to build and protect brands. There are many opportunities for people who want to explore careers and business. Whats the difference between a licence and franchise.
Licensing and franchising can be done both as a business owner and as someone looking to enter a specific market. Licensing vs franchising welcome to franchising plus. While franchising is perhaps the worlds most powerful growth vehicle, the entrepreneur considering growth options would be. In contrast, a licensing arrangement allows a licensee considerable freedom in the operation of. 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. These may include national marketing, accounting, pointofsales information, site selection, and site acquisition. In a typical licensing agreement, the licensor grants the licensee the right to sell. Franchising might be right for your business, but it is not your only option. In none of these cases did the parties intend to form a franchise relationship. What is the difference between a licence and franchise agreement. After having clarified what these two concepts actually mean, one can also understand how licensing and franchising differ. Intellectual property rights or know how are frequently licensed to.
The advantages and disadvantages of franchising by david e. Differences between licensing and franchising marketing. February 9, 2010 min read opinions expressed by entrepreneur contributors are their own. Also, if youre looking for highquality resources such as journals and articles, pdf files, videos, research papers, ebooks, and other secondary literature to write your assignment task, then we can certainly. Franchising vs licensing is often the tough question potential wouldbe business owners ask themselves, as both are popular business models. Compare licensing vs franchising a business costs franchising a business overview franchising is a popular way to start a business because its much less risky than creating a business from scratch.
Licensing is an older, more established business model than franchising. Agenda licensing what is a license agreement licensor vs licensee licensing pros and cons top 5 licensors franchising franchisor vs franchisee franchising pros and cons top 7 franchisors licensing or franchising 3. The idea was to introduce young people to franchising, to the many facets of the franchising business, and to the many opportunities that franchising offers for both employment and professional careers and for business opportunities and business ownership. It is really a great feeling to be changing over from an employee to an owner. Franchising is a form of licensing whereby the franchiser provides a standard package of components or ingredients together with management and marketing expertise, and the franchisee provides capital, market knowledge, and personal involvement. Used by businesses across the world, these two models carry their own sets of advantages and shortfalls. Franchising is a form of licensing where the second party sets up stores in the name of the company.