Franchising and licensing are business arrangements that allow one party (the franchisor or licensor) to grant rights and permission to another party (the franchisee or licensee) to use their intellectual property, brand, products, or services. However, there are significant differences between the two concepts, and this is an area we are often asked about. Here are some comparisons to help you decide if a franchise or license model will best help you achieve your growth objectives. Our team can assist you with both options.
Franchising: Franchising involves a more comprehensive relationship between the franchisor and the franchisee. The franchisor provides not only the right to use its brand and trademarks but also a complete business model, ongoing support, training, and access to proprietary systems and processes.
Licensing: Licensing is a simpler arrangement where the licensor grants the licensee the right to use a specific intellectual property, brand, or technology, often for a limited purpose or within a defined geographic area. It usually does not involve the same level of ongoing support or business assistance as franchising.
Franchising: In a franchise arrangement, the franchisee operates their business under the guidance and rules set by the franchisor. The franchisee pays an upfront fee for the grant of rights (franchise fee) and ongoing royalties to the franchisor in exchange for using their brand, systems and support.
Licensing: With licensing, the licensee typically pays the licensor a licensing fee or royalty for the right to use their intellectual property, but the licensor does not have the same control over the licensee's business operations or route to market, which can sometimes be confusing for consumers.
Level of Control
Franchising: Franchisors usually maintain more control over how their brand is represented and how the business is operated. They usually have detailed standards and requirements that franchisees must follow, known as Operations Manuals.
Licensing: Licensors may have some control over how their intellectual property is used, but they usually have less influence over the licensee's business operations and practices.
Support and Training
Franchising: Franchise systems usually include ongoing support, training programs, and assistance from the franchisor to help the franchisee succeed.
Licensing: Licensing agreements generally do not include the same level of support and training; the licensee is responsible for using the licensed property appropriately and effectively.
There are pros and cons for both models; ultimately, determining which is the right model for your business objectives will likely come down to how much control you want over how the intellectual property is used and whether you want the user to operate under your brand or their own.