Licenses vs. Franchises

There are distinct differences between franchising and licensing businesses. The chief one concerns establishment and operation costs, but there are others as well. It is important to know about as many of these differences as possible before deciding which one is best for you.

Let's talk about the difference that has already been mentioned: establishment and operating costs. A franchise requires that a significant amount of money be paid at the very beginning. Additionally, you will continue to pay royalty, advertising, and other fees to the parent company.

On the other hand, you only pay for a licensing fee one time, and the cost is usually lower than that of a franchise fee. Because you are not connected with a franchise, however, you do not have to pay royalty fees or provide financial information on your business. You are pretty much responsible, however, for your own advertising and other business-related expenses that might be covered in a franchise.

Relationships between franchisees and parent companies and licensees and those from whom they obtained the license are different. Franchisees can expect to work a little more closely with the parent company; this may be especially true in the areas of training and support. Further, as a franchisee, you retain certain rights to company trademarks and logos.

Also, as a franchisee, you may be limited in some areas, such as where your branch can be located, which products and services you can offer, and possibly even price amounts.

A licensee, however, may not have much contact with the original license holder at all. Further, the license agreement may not include the use of a brand or trademark; rather, as a licensee, you will be expected to make your own mark in the particular market for which you hold a license. You probably won't get a lot of training or support from the original license holder, either.

Further, as a general rule, you do not have any territorial rights. In other words, the original licensor can sell as many licenses, along with the products and services they offer, as he wishes in the same geographic area.

On the bright side, about the only time you will even be in contact with the licensor is when you're buying his product to sell in your store. However, that's all you'll pay, is the purchase price on the product. You won't have to pay royalty, advertising, or other fees to support the licensor.

Whether you seek to be a licensee or franchisee, an expert FranFinders franchise consultant can assist you with your search.