In order to understand the difference, it is necessary to understand exactly what a licence. A license arrangement is primarily composed of 2 elements. 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. After having clarified what these two concepts actually mean, one can also understand how licensing and franchising differ. It is a marketing system for creating an image in the minds of current and future customers about how the companys products and services can help them. Many business owners choose to implement a licensing agreement arrangement to expand their business. Franchising is based on a marketing concept which can be adopted by an organization as a. The difference between licensing and franchising can be drawn clearly on the following grounds. 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. 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. Structuring licenses to avoid the inadvertent franchise.
National precontractual disclosure obligation laws eff. 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. In accordance with federal laws, before a business can be franchised, prescribed legal documents must be created. When you franchise your brand or business, you retain an enormous amount of power. Youre buying into a successful, established business. Franchise vs licensing will appear in the spirit of the conformity rather than its name. In a nutshell, a franchise is a license wherein the licensor. Franchising is an arrangement in which the franchisor permits franchisee to use business model or brand name for a fee, to conduct business, as an independent branch of the parent company franchisor. Hidden camera investigation on what really happens to your car cbc marketplace duration. The economic impact of franchised businesses in the united states pdf. 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. Franchising vs licensing is often the tough question potential wouldbe business owners ask themselves, as both are popular business models.
What is the difference between franchising and licensing in regards to expanding a business. Adopting a franchise system business growth strategy for the sale and distribution of goods and services minimizes the franchisors capital investment. What is the difference between licensing and franchising. Franchising might be right for your business, but it is not your only option. A comprehensive difference is shown in the following table. If you continue browsing the site, you agree to the use of cookies on this website. 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. Franchising and licensing are terms which describe very similar relationships but with stark differences. What is the difference between a franchise and a licence.
For a company looking to expand or a budding entrepreneur planning a startup, taking on a franchise or negotiating a licence on an existing product or service are currently two of the most popular ways. At the franchise institute, we encourage people to consider the two options. Its true, over the last 14 years weve seen thousands of people achieve their. This guide discusses some of the differences between a simple license and a franchise. 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. Franchising is an arrangement in which the franchisor permits. Indeed, to be a proper franchisee you are required to use their logo, name, product, and business system. Licensing franchising and licensing are means of expanding a business. Franchising vs licensing difference and comparison diffen.
But business owners are seldom given much advice on the difference between the two, and. This report on competition policy and vertical restraints. Holmes northern california office s outhern california office 555 chorro street, suite d2 6621 pacific coast hwy. Franchising is a business strategy for getting and keeping customers. Unlike a licence agreement, franchise agreements will contain specific directions on how the franchise must operate. Indeed, both can offer a route to successful expansion, as an alternative to organic growth, and with lower risk than. Difference between franchising and licensing compare the.
A key difference lies in the area of law by which each business type is governed. A restaurateur ponders taking the leap into franchising. We will now turn to the differences between licensing and franchising. These two terms are often confused with one another. Should i franchise or license my business 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. This topic may spark some debate because, in the end, it really depends upon what you want out of the relationship. New challenges in franchisorfranchisee relationship. In licensing, another individual is buying the rights to use aspects of another companys branding, products, and trademarks in exchange for a percentage of. One advantage is that licensing costs much lesser in terms of the initial investment and ongoing charges. As a marketer you try to build your brandso that your customers will know how toevaluate the intangible parts of your service. 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. To franchise, or not to franchise, franchising and.
Franchising a business is quite a bit more regulated than licensing one. Click here to request our free onehour webinar, alternatives to franchising. This is a question that a lot of business owners and aspiring. Marilyn monroe estate, 2014 onsc 4584 provides some guidance on the distinction between franchise agreements and license agreements. Restoring balance and protecting value a franchise. Can become full or associate members of the federation, any legally constituted, independent and representative national franchise. However, franchising and licensing come from two distinct areas. According to the 2018 state of small business survey, entrepreneurs in each cohort reported an 8 out of 10 when asked about their happiness as business owners. It is a method for distributing products and services that satisfy customer needs. If the stress of deciding between opening a franchise or an independent business is weighing heavily on you, rest easy. 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 used by others. Agreements explores the application of competition policy to vertical relationships. However, while franchising is a regulated industry and there are startup costs and expenses associated with franchising your business, it is critical that you. Franchising vs licensing differences between franchising.
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. What is the difference and how do you know if franchising vs. Whether you are licensing or you are franchising, the significant thing is to defend your ip. Elements of a franchise a franchise has been described as a license on steroids. This allows the small guy access to a successfully established product with a 30 year track record. Franchising is a popular way to start a business because its much less risky than creating a business from scratch. Like a licence agreement, a franchise agreement is also a type of contract. Distinguishing license agreements from franchise arrangements.
However, the ruling falls short of providing a clear framework for determining whether a license arrangement is subject to the arthur wishart act franchise disclosure, 2000 wishart act, as the decision. It is in place to protect both the franchisor and franchisee and ensure the best success for both parties. This legal difference forms the basis for what information needs to be included in each type of agreement. Its easy to become confused between franchising and licensing because on the surface they sound remarkably similar. On the flip side, potential for revenue growth is more limited because the parent company will only earn a percentage of the. All of the above factors should be considered in a franchising versus licensing decision. 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. You supply the business model, and you can define the territory in which any given franchisee can operate. Important on franchise vs licensing agreement example. Often we are asked what is the difference between a franchise and a licence. Franchise trademarks trade names business naming a. 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.
For a company looking to expand, franchising and licensing are often appealing business models. While it is true that there is more regulation in franchising, this need not be seen as cumbersome. Running a franchise takes some business acumen to make. However, some people still think that franchising and licensing are almost the same and have no specific difference. This webinar discusses in detail the various alternatives to franchising, their relative strengths and weaknesses, and their legal requirements. Used by businesses across the world, these two models carry their own sets of advantages and. Franchising licensing definitions franchising is a business model in which you. Differences between licensing and franchising marketing. But this is not the case, as franchising is totally different to licensing. Another fundamental difference between franchising and licensing is the amount of control a franchisor holds over the franchisee. When it comes to expanding a business, whats the difference between franchising and licensing. Licensing versus franchising august 23, 20 for a business looking to grow, the option of franchising or licensing can be very appealing.
Franchises to franchise, or not to franchise a restaurateur ponders taking the leap into franchising. Most of the time when we hear the term franchising it refers to business format franchising. 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. 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 is a faster, cheaper form of expansion than adding companyowned stores, because it costs the parent company much less when new stores are owned and operated by a third party. Yet, these situations arise with considerable frequency. Outsourcing and franchising how onep morocco mobilizes small scale local entreprises to cut down running costs bernard collignon hydroconseil water and sanitation services in small towns and multivillage schemes addis ababa june 1115, 2002 water and sanitation program the world bank and the world bank institute. While franchising is perhaps the worlds most powerful growth vehicle, the entrepreneur considering. Certainly no licensor expected to end up defending franchise allegations. These legal documents are known as the franchise disclosure document and the franchise agreement. Your brand, the patents, knows how, the trademarks etc. Licensing and franchising can be done both as a business owner and as someone looking to enter a specific market. It is really a great feeling to be changing over from an employee to an owner.
A model that predicts franchisor success or failure is therefore. The franchisorfranchisee relationship is a model most people understand and has historically led to mutually beneficial success. 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. We have also advised both franchisees and licensees. The advantages and disadvantages of franchising by david e. The most distinctive feature of a franchise agreement is that a franchisor exercises significantly more control over franchisees than a licensor. Difference between franchising and licensing difference. If you are building or have built a brand in yourhome country that you believe will have global appeal,franchising or licensing is a good. What is the difference between franchising and 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. Franchising vs licensing compare contrast business model.