Licensing vs franchising top 5 best differences with infographics. Like a licence agreement, a franchise agreement is also a type of contract. The most distinctive feature of a franchise agreement is that a franchisor exercises significantly more control over franchisees than a licensor. Franchisees typically retain rights to the parent companys trademark and logo. In exchange, the franchisee puts up the initial capital for the business, helps to promote the brand and pays a licence fee. Before turning to the differences between licensing and franchising, we should take a closer look at the definitions of the two concepts. To recognize the implication of these changes for companies that. To identify how a company can use franchising as a strategy to accomplish its mission.
However, while franchising is a regulated industry and there are startup costs and expenses associated with franchising your business, it is critical that you understand that licensing is not an alternative to franchising. 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. Licensing is a contractual arrangement in which one firm grants access to its patents, trade secrets or technology to another firm in a foreign country. Often, the difference between a licence and a franchise comes down to whether. An introduction to licensing bioeconomy corporation.
When you have a great business model, there are two powerful ways to see it reach its full potential. In a nutshell, a franchise is a license wherein the licensor controls the licensee and benefits from that cont. Difference between licensing and franchising praxis. But this is not the case, as franchising is totally different to licensing. For example, among other differences, as suggested above, federal law is implicated with respect to franchises. 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. Elements of a franchise a franchise has been described as a license on steroids. 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 in the sense of business opportunities. Franchising and factoring definition, examples, diagrams. Difference between franchising and licensing large companies have both the models to offer to a person who wishes to be liked with them. Licensors and franchisors have different roles when it comes to license agreement vs.
Most of the time when we hear the term franchising it refers to business format 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. Under this, dealers were given the right to distribute goods for a manufacturer. Franchising is a type of licensing that goes beyond use of a specific product or branding and encompasses your business model. The difference between franchising and licensing is that franchising is used for goods whereas licensing is used for services.
Both the positive aspects and the lacunas associated with licensing are substantially discussed further in this paper. The manager manages the day to day operations of a business, in exchange for agreed upon compensation and benefits. Many businesspeople and professionals think that franchising and licensing are the same, but the fact is that they are different. In franchising, the franchisee gets the right to display the same brand logo, trademark, name and image as that of the parent company. In contrast, a licensing arrangement allows a licensee considerable freedom in the operation of. What is the difference and how do you know if franchising vs. 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. Having said that, some licensing can look a lot like franchising. However, while franchising is a regulated industry and there are startup costs and expenses associated with franchising your business, it. After having clarified what these two concepts actually mean, one can also understand how licensing and franchising differ. The main differences are summarized in the following table. The franchisor, being a business with a strong brand and a wellestablished and profitable business model, looks to replicate that model by franchising it to other people the franchisees. Those fees generally include a flat amount to join the franchise, along with ongoing royalties.
This article will explore different growth strategies with a particular emphasis on franchising, which is the most highly regulated of the growth strategies analyzed. If the answer is yes, then you have entered into a franchise agreement. Those fees generally include a flat amount to join the franchise. Franchising is a business strategy for getting and keeping customers. Covers the total business format, including knowhow, intellectual rights, goodwill, trade marks and business contacts. Whats the difference between a licence and franchise. Both sell intangibles and both earn fees from those sales. This guide discusses some of the differences between a simple license and a franchise. 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. The major difference between franchising and licensing we would like to take a minute to answer a very common question often asked. It is a marketing system for creating an image in the minds of current and future customers about how the companys products. The difference between licensing and franchising can be drawn clearly on the following grounds. 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.
Leonard can help you understand the difference between franchise laws in california and the laws that apply to licensing agreements. What are the pros and cons on licensing vs franchising. If you continue browsing the site, you agree to the use of cookies on this website. Structuring licenses to avoid the inadvertent franchise. Understanding franchising franchise business services. 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. Unlike a licence agreement, franchise agreements will contain specific directions on how the franchise must operate. Both concepts are ways in which the firm can establish business in other markets and therefore entry modes. The main differences most agreed on can be found here. For one thing, franchisees have to abide by company rules and the terms of their licensing agreements, so if you love to be independent, opening a franchise might not be your best bet. The essence of licensing which is also the basis of franchising is the owner retaining ownership of its ip while granting others the right to use it. Certainly no licensor expected to end up defending franchise allegations. What is the difference between franchising and licensing.
In franchising, the franchisor licenses its intellectual property to the franchisee. You supply the business model, and you can define the territory in which any given franchisee can operate. In licensing, another individual is buying the rights to use aspects of another companys branding, products, and trademarks in exchange for a percentage of. Franchising might be right for your business, but it is not your only option. Given the prevalence of franchising and the interstate, national, and even international scope of so many franchise networks today, attorneys need to know about potentially applicable federal, state, and foreign franchise laws. Franchising is a way to scale a business once it is successful and proven. This is because licensing is not subject to the ftc franchise rule. Licensing and franchising, what is the difference and does. Franchising vs licensing difference and comparison diffen. Licensing, on the other hand, allows a licensee to pay for the rights to use a particular trademark. An introduction to licensing 2 november 2009 8 means of avoiding costly legal action the licensor, through licensing to a potential infringer, may avoid a costly legal action while at the same time also profiting from its licensing revenue. Franchising is a business strategy in which franchiser owner of the business, product or services, affiliate with franchisees dealers of products for distribution, business expansion, and marketing. We will now turn to the differences between licensing and franchising.
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. Franchising us department of commerce defines franchising according to the federal trade commission rule ftc 436 as. It involves finding franchisees with the skills necessary to. Franchising, licensing, contract manufacturing pros and cons. Differences between licensing and franchising marketing. 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. Many businesspeople and professionals think that franchising and licensing are the. To understand the difference between licensing and franchising the starting point is to look at what each term means. Yet, these situations arise with considerable frequency. Difference between franchising and licensing compare the. Difference between franchising and licensing difference. Licensing and franchising, what is the difference and does it. Either strategy can result in an incredible return on your investment. 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.
Whats the difference between franchising and licensing. Licensing refers to an arrangement between licensor and licensee where latter party would acquire the right to use. Difference between licensing and franchising with comparison. Opening a franchise can be a lowerrisk way to start a small business, but its not for everyone. The major difference between franchising and licensing. Ive decided to list the disadvantages first, to in some way attempt to counterbalance my natural tendency to. Many times, people think licensing is an easier route to franchising. Licensing arrangements are governed by standard contract law so there are less administrative burdens than in a franchising arrangement.
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. When you franchise your brand or business, you retain an enormous amount of power. 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 franchise company and management company have much in common. 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. On the most basic level, the difference between a franchise and a license is the amount of support you can expect to receive. Another fundamental difference between franchising and licensing is the amount of control a franchisor holds over the franchisee. To establish unified thinking about franchising and the language that must reflect that understanding.
Its easy to become confused between franchising and licensing because on the surface they sound remarkably similar. However, some people still think that franchising and licensing are almost the same and have no specific difference. The first and foremost difference between licensing and franchising is that the former is mainly associated with the production and marketing of. What is the different between management contract and. Franchising is based on securities law while licensing falls under the purview of contract law. Find out more about the pros and cons of franchising below. The fundamental difference between franchising and licensing is that in licensing, the small business owner doesnt relinquish as much control over their business as with franchising. Difference between licensing and franchising the tasa group. As a business owner, one has to choose from the two models as to how he wishes to go ahead. Many business owners choose to implement a licensing agreement arrangement to expand their business.
Franchisees use the trademark and strategies of parent company i. Licensing when considering which model will work best for your business you need to consider the nature of your business and what degree of control you need over your ip or brand when it is. Franchising is an ongoing business relationship between franchisor and franchisee that includes not only the product, service and trademark, but the entire business concept itself a marketing strategy and plan, operating. Franchising on the other hand is often confused with the term licensing. The broad scope of the franchise laws may apply to a. At the franchise institute, we encourage people to consider the two options carefully before they. Franchising allows another business to replicate your entire company and business model in exchange for fees. What is the difference between licensing and franchising. The ftc franchise rule interpretive guides sets forth 9 examples of.