Franchising & Licensing- A Comparative Overview

Many people are not aware of the differences between franchising and licensing. Both are different business models having separate advantages. This article sums up a comparative overview of the franchising and licensing business model.

Franchising differs from licensing in a number of ways. They are two entirely different business models. However, they both can have a similar positive impact on the brand growth of a business. When you are determined to expand your business into new geographical regions or product areas, it is better to take your time for learning about the key differences between franchising and licensing. If you are thinking about how to franchise a business, first learn about this model as well as about the other model. It is also important to learn about the advantages and disadvantages of each business model. In this article, you will explore some crucial information that will help you choose the right plan for expanding your business.

What is franchising?

Franchising is a model in which a business provides contracts to entrepreneurs allowing them to duplicate a successful model in a new location. In a contract, you will be able to specify how you want the franchised business to be operated. For instance, you can define the products that your business will sell. In some cases, the franchisors need their employees to have certain training. Even, sometimes, the franchisors provide uniform clothing for requirements.

To get a clear idea, let’s consider the example of McDonald’s. It is one of the famous franchise businesses in the world. Every outlet is owned by an individual franchisee, but all franchisees conform to the standard set out by the company regarding the products they are selling. Even the uniforms of the employees are the same in all the outlets across the globe. For setting up a business, you need to have a clear concept of the franchise model.

What is licensing?

Licensing means giving other businesses a license with which they can use your brand identity and logo. There are many instances of the licensing business. For example, let’s look at Calvin Klein that manufactures only a few products under the company logo. All other products including clothing and perfume are manufactured by other businesses who have bought a license agreement for using the brand name.

Disney is another remarkable example that you should consider. The Disney Consumer Products branch sometimes licenses the movie characters, images, and names to the businesses, which are eager to create clothing, toys, home décor, and even personal care products. This way, Disney spreads its brand identity across the world.

Advantages of franchising

It is an ideal way of expanding your business without the need of investing in opening up a range of new locations. In comparison to licensing, franchising enables you to keep a high level of control over how the brand name is being used. This business expansion model allows you to control how the franchisees present your business before the world.

If you want to be a successful franchisor, you must provide your franchisees with ample time and support. Providing training programs for franchise owners and employees will help you ensure that the franchisees are representing your brand the way you want it.

Advantages of licensing

If you are thinking about expanding your business on a wider scale, licensing will help you. You will be able to make money from the products that carry out your brand logo. You don’t need to spend money on producing the goods yourself. The licensee will afford the costs associated with financial and legal risks existing inside the product manufacturing.

Bottom Line

Franchising a business or licensing a business- it will depend on your goals and business requirements. If you opt for franchising and want to explore how to franchise a business, it is better to ask for experts’ help. For licensing, get in touch with a legal attorney.