Nov 19, 2016 what is the difference between franchising and 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. 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. What is the difference between franchising and licensing. 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. While franchising is a recognized legal terminology, in the sense that it subjects the party offering these services to certain rules and regulations, licensing does not come with these issues, but it is necessary to be careful as licensing can also be. In fact, some licensing deals are so close to franchising that they. The broad scope of the franchise laws may apply to a. Licensing top national franchise lawyers based in ny. The main differences are summarized in the following table. How does franchising differ from licensing in australia.
To understand the difference between licensing and franchising the starting point is to look at what each term means. It really depends on how much control you want to have over your operators. If the answer is yes, then you have entered into a franchise agreement. In fact, licensing when used as an alternative to franchisingis a trap that may damage your. Each model has its advantages and can offer an effective strategy for expansion. Six days a week, in neighborhoods all across the country, more than 2,000 chickfil a restaurants are serving handbreaded chicken sandwiches, hot waffle fries and genuine hospitality. 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. If you are looking for ways to expand your successful business, you may be tossing up between using a franchise or licence model. There is a world of difference between licensing and franchising but its not always easy to distinguish between them.
Learn vocabulary, terms, and more with flashcards, games, and other study tools. Under this, dealers were given the right to distribute goods for a manufacturer. For a company looking to expand, franchising and licensing are often appealing business models. In order to understand the difference, it is necessary to understand exactly what a licence and a franchise are. However, some people still think that franchising and licensing are almost the same and have no specific difference. Experienced california and orange county franchise lawyer i am often asked the difference between a franchise business model, a distribution model, and a licensorlicensee relationship. A key difference lies in the area of law by which each business type is governed. Differences between licensing and franchising marketing.
What is the difference between licensing and franchising. What is the difference between a licence and franchise agreement. 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. What is the difference between an agreement and a deed. Franchising vs licensing difference and comparison diffen. Before turning to the differences between licensing and franchising, we should take a closer look at the definitions of the two concepts. February 9, 2010 min read opinions expressed by entrepreneur contributors are their own. Franchising is a way to scale a business once it is successful and proven. At the franchise institute, we encourage people to consider the two options.
This is because licensing is not subject to the ftc franchise rule. Differences between licensing and franchising marketinginsider. What is the difference and how do you know if franchising vs. What is the difference between franchising and licensing in regards to expanding a business when it comes to expanding a business, whats. This can help you figure out the area into which a specific issue should fall. A franchise is the agreement or license between two legally independent parties which gives. Both concepts are ways in which the firm can establish business in other markets and therefore entry modes.
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. Licensing, franchising, and other contractual strategies. Each growth strategy has its own advantages and disadvantages, and each has its own legal ramifications. 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.
The hallmark of a franchise is the nature and extent of the control that a franchisor exerts over the operation of a franchisees business. Franchising on the other hand is often confused with the term licensing. The two have some significant differences, and if you are considering growing your business either through franchising or licensing, its important to understand how these arrangements are structured. Usually it centers on a product or service that can be offered for money. Selling a disguised franchise by calling it a license can be the most serious and costly mistake your firm ever makes.
After having clarified what these two concepts actually mean, one can also understand how licensing and franchising differ. Licensing and franchising are sometimes used to mean the same thing, but there are differences. Franchising is one of the most successful means for expanding almost any business. Licensing refers to an arrangement between licensor and licensee where latter party would acquire the right to use products and goods where the ownership remains with the licensor whereas franchising refers to an arrangement between franchiser and franchisee where the latter will enjoy the ownership of a business on behalf of the franchiser in lieu. Both the positive aspects and the lacunas associated with licensing are substantially discussed further in this paper. Difference between franchising and licensing difference. When trying to expand or leverage your successful business to further growth two models that are commonly used are franchising and licensing. 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. Elements of a franchise a franchise has been described as a license on steroids. The difference between licensing and franchising can be drawn clearly on the following grounds. Licensing and franchising, what is the difference and does. International franchising and licensing request pdf researchgate.
Running a franchise takes some business acumen to make. Our web page licensing or franchising outlines the difference 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. Holmes northern california office s outhern california office 555 chorro street, suite. To understand licensing, let us take the example of walt disney.
Jul 26, 2016 franchising us department of commerce defines franchising according to the federal trade commission rule ftc 436 as. 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. Its easy to become confused between franchising and licensing because on the surface they sound remarkably similar. 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. An idea is the first milestone in the process of founding a business. Both can be a route to successful expansion, as an alternative to organic growth and with less risk. 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. First, its important to understand the difference between these two models. Franchising and licensing are terms which describe very similar relationships but with stark differences.
Dec 23, 2008 what is the difference between franchising and licensing in regards to expanding a business when it comes to expanding a business, whats the difference between franchising and licensing. Difference between licensing and franchising the tasa group. What is the difference between a licence and franchise. 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. Licensing vs franchising the primary difference between a franchisee and a licensee is that franchisees can expect to have a much closer relationship with their parent company than their licensee counterparts.
But this is not the case, as franchising is totally different to licensing. Franchisees typically retain rights to the parent companys trademark and logo. This guide discusses some of the differences between a simple license and a franchise. What is the difference between a franchise and a licence. Mcdonalds is one of the best known examples of a business that has grown through 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. While franchising is a form of business licensing, not all licensing agreements are franchises. Difference between an innovative idea and a business opportunity what is a business idea. A business idea is a concept that can be used to make money. The advantages and disadvantages of franchising by david e. Licensing works best when a company does not have any desire to exert any type of control over its operators, wants to just teach someone how to do the business. Used by businesses across the world, these two models carry their own sets of advantages and shortfalls. 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.
At the franchise institute, we encourage people to consider the two options carefully before they. As a business owner, one has to choose from the two models as to how he wishes to go ahead. We are often asked the difference between a license and a franchise agreement. Licensing and franchising can be done both as a business owner and as someone looking to enter a specific market. Here we discuss the top difference between licensing and franchising along with. The first and foremost difference between licensing and franchising are that the former is mainly associated with the production and marketing of goods while the latter is related to. The major difference between franchising and licensing. Difference between franchising and licensing compare the. In a nutshell, a franchise is a license wherein the licensor. 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. As similar as these two may sound, theres quite a lot of differences between the two. Many think that franchising and licensing are same, but the fact is that they are different, only the advantages of franchising are similar to those of licensing. For this right, the dealer pays a fee for the right to sell the trademarked goods of the producer. There are, however, important differences between a licence and franchise agreement that you should understand.
Licensing and franchising, what is the difference and does it. The two have some significant differences, and if you are considering growing your business either through franchising or licensing, its important to understand how these arrangements are structured franchising explained. Large companies have both the models to offer to a person who wishes to be liked with them. Given the prevalence of franchising and the interstate, national, and even. Under a franchise, the owner franchisor retains control of the brand and licenses that is, grants permissions to the franchisee to use its. Apr 09, 2017 what is the difference between a licence and franchise agreement. We have also advised both franchisees and licensees. If an arrangement between parties meet all of the criteria then it is a franchise agreement, there is no contracting. Jan 07, 2011 difference between franchising and licensing. It involves finding franchisees with the skills necessary to operate branches of the same business. Difference between licensing and franchising with comparison.
But which model is better franchising vs licensing. Whats the difference between licensing and 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. We will now turn to the differences between licensing and franchising. We would like to take a minute to answer a very common question often asked. Jan 28, 2017 how do i know if i am licensing or franchising. This article will explore different growth strategies with a particular emphasis on franchising, which is the most highly regulated of the growth strategies analyzed. Many potential business owners are confused between the concepts of a franchise and license a.
In contrast, a licensing arrangement allows a licensee considerable freedom in the operation of his or her business. In franchising, the franchisee gets the right to display the same brand logo, trademark, name and image. Holmes northern california office s outhern california office 555 chorro street, suite d2 6621 pacific coast hwy. Franchising is a wonderful way to go into business for yourself, but not by yourself. 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. Jan 16, 2017 now that you understand the difference between franchising and licensing its time to decide where your priorities fall for your business. Many business owners choose to implement a licensing agreement arrangement to expand their business. Franchising is a concept whereby independent entities embark upon mutual cooperation, as a part of which the franchisor as the systems organiser transfers onto the franchisees, in exchange.
By contrast, starbucks has grown by opening its own branches. This legal difference forms the basis for what information needs to be included in each type of agreement. This includes terms and conditions, reselling, and licensing. What are the advantages and disadvantages of owning a franchise. 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. Aug 12, 2017 many think that franchising and licensing are same, but the fact is that they are different, only the advantages of franchising are similar to those of licensing. February 9, 2010 min read opinions expressed by entrepreneur contributors are. In franchising, the franchisor licenses its intellectual property to the franchisee.
Difference between licensing and franchising praxis. 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. Starting and running a small business can be challenging, so its important to determine what is best for you and your business. On the most basic level, the difference between a franchise and a license is the amount of support you can expect to receive. Franchising vs licensing differences between franchising. Licensing vs franchising top 5 best differences with. In a franchising model, the franchisee uses another firms successful business model and brand name to operate what is effectively an independent branch of. 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. Franchising vs licensing is often the tough question potential wouldbe business owners ask themselves, as both are popular business models. Jul 10, 2017 franchising might be right for your business, but it is not your only option. A license arrangement is primarily composed of 2 elements. This definition is rather open and the nature of foreign activities is not specified. Licensing vs franchising top 5 best differences with infographics.
For these entrepreneurs, establishing a franchise system unnecessarily appears to be a daunting task and is disregarded in favor of licensing. The main differences most agreed on can be found here. Often we are asked what is the difference between a franchise and a licence. Whats the difference between a licence and franchise. This topic may spark some debate because, in the end, it really depends upon what you want out of the relationship. What is the difference between franchising and licensing in. Difference between licensing and franchising praxis legal. What is most important to you as a small business owner. Franchising might be right for your business, but it is not your only option. 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. Now that you understand the difference between franchising and licensing its time to decide where your priorities fall for your business. Franchising us department of commerce defines franchising according to the federal trade commission rule ftc 436 as. The first and foremost difference between licensing and franchising are that the former is mainly associated with the production and marketing of. Franchising is based on securities law while licensing falls under the purview of contract law.
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