Franchising vs. Licensing: What’s the Difference?

If you have developed a successful business, you may find yourself wondering about how to expand your operations without taking on a lot of additional expense. Or perhaps you are looking to grow a business by drawing upon the success of such a company. Two common options for promoting this type of growth are franchising and licensing.

What Is Franchising?

A franchise extends an already existing business structure to another location. This new location will have the same brand, marketing, and even methods of selling products or providing services as the original business. Chain restaurants offer a good example. Companies like McDonald’s and Wendy’s have huge franchise bases that are often managed to restrict potential overlap or competition between locations.

The franchisee gets the benefit of operating a business that is already established and uses a standard operating system. Much of the business development is already done, and they get the benefit of working with a recognized brand. The franchisor grows its brand visibility, increases the size of the market it serves, and creates an additional revenue stream from franchise fees and royalties.     

What Is Licensing?

Licensing allows a company to sell the rights to some of its intellectual property so that others can use it in a way that benefits them. A license drives brand visibility, but the brand being licensed may be used in a variety of ways that have little in common with its original creation or purpose.

Disney is perhaps the most well-known licensing success story in the United States. It has “rented out” its movie characters and images to companies that create personal care products, home furnishings, clothing, and more. Disney does not invest the time and money to create all of these items. Instead, other companies purchase the right to use Disney’s property, and Disney gets paid for that use.

The Differences Between Franchising and Licensing

Buying a franchise can be a good option for someone looking to create a new business with an established customer base and operating procedures, and selling franchises can be very lucrative for an established company with popular products. Purchasing a franchise includes the rights to use a company’s logo, business methods, etc. Often there is no separate licensing fee.

A license is a much cheaper way to expand an existing business. If you already have a t-shirt shop, for example, you might increase your sales by including prints of Disney princesses. You still have to have the underlying resources to create whatever product you want to sell, but licensing can be a good option for product line expansion. And selling the license to a well-known brand can create strong cross-market partnerships for companies looking to grow beyond the niche they already inhabit.

If you are considering a franchise or licensing arrangement, an attorney can help you prepare the necessary contracts and agreements to protect your interests and prevent future disputes. Let Integrated General Counsel help you with this process. Learn more about our services by contacting us today.

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