Difference Between Franchising and Licensing

Main Difference

The main difference between franchising and licensing is that franchising is generally related to the service business, whereas licensing is normally associated with the production and marketing of goods.

Franchising vs. Licensing

Franchising is generally related to the service business, whereas licensing is normally associated with the production and marketing of goods. Franchising is administrated by law sanctuaries while licensing is directed by agreement law. Registration is required in franchising due to security law; on the other hand, registration is not required in licensing. Franchising is offered with territorial rights; on the contrary, licensing is not offered with territorial rights and a licensee can sell similar products and licenses in the same area. Support and training are provided by franchiser while licensing does not provide any support or training. Trademark or logo is used by the franchisee and retained by the franchiser, whereas licensing can be licensed. Franchiser implement its control over franchise; on the flip side, the licensor does not have any control over licensee. Franchising needs ongoing assistance of franchiser; conversely, licensing involves a one-time transfer of rights or property. The fee structure of franchising is standard; on the contrary, fees of licensing is negotiable. Franchising tends to be a startup situation as regards the franchise, while in licensing, licenses are normally taken by well-established businesses. The duration of agreement of franchise in franchising is normally for 5-11 years, while the duration of agreement terms are 16-20 years common in licensing.

Comparison Chart

FranchisingLicensing
Franchising is founded on a marketing concept, adopted by an association as an approach for business expansion.Licensing is an official permit or permission to own, and use something and as well as the document of that permission.
Governed By
Securities lawContract law
Registration
RequiredNot required
Territorial Rights
Offered to franchiseeNot offered
Support and Training
ProvidedNot provided
Use of Trademark/Logo
Used by a franchisee, retained by the franchiserCan be licensed
Control
Exercise control over a franchiseeDoes not have control over the licensee
Duration
5-11 years16-20 years
Fee Structure
StandardNegotiable
Examples
Subway, McDonald’s, 7-11, Dunkin Donuts, etcMicrosoft office, mickey mouse, life is good, etc

What is Franchising?

Franchising means an arrangement between franchisor and franchisee in which franchisor permits franchisee to use the brand name or business model for a fee, to conduct business as an independent branch of the franchisor (parent company). Franchising occupies the whole occupational plan which comprises all intellectual rights, goodwill, trademarks, know-how, and business contacts. Franchising is all encircling. Franchising tends to be a startup situation as regards the franchisee. The duration of agreement of franchise in franchising is normally for 5-11 years. Franchisee in franchising is very definitely selected by the franchisor, and its replacement is also controlled by the franchisor. The franchisor is bound as it’s the part of an agreement to convey its franchisees the whole occupational format, including profits and losses of the ongoing research programs. The franchisee always participates additional for the business set-up than the belongings he received, although franchisor does retain the main goodwill.

Possessing a franchise permits an individual to participate more in an established system with support and training from the franchise and to become self-employed. There is on-going research and develop, reduced risk of failure, and a semi-monopoly in a specific territory. Franchising permits franchisors to develop their business for usually less deal rather than founding their new locations themselves. A businessman should look at financial statements, it’s inflows and cash flows and compares it to competitive franchises in those similar areas. They should investigate intellectual property issues like patent ownership and name brand availability search.

What is Licensing?

Licensing means an agreement in which a company (licensor) sells the right of a company to use intellectual property or produce a product to the licensee of the company for royalty. In other words, licensing is normally associated with the production and marketing of goods. Licensing is directed by agreement law. Registration is generally not obligatory in licensing. Licensing is not offered with territorial rights, and a licensee can sell similar products and licenses in the same area. Licensing does not provide any support or training. Licensor has no control over the licensee’s business but can control the use of the intellectual property by the licensee. Licensing involves only a one-time transfer of rights or property. The fee structure of licensing is negotiable. A licensing agreement takes only one to complete the process.

The advantages of licensing are that a license permits the licensee to make and sell an idea, use, design, name or logo for a fee. For licensors, they are very beneficial because they let them enlarge their business limit without investing in new places.

Key Differences

  1. Franchising is generally related to the service business, whereas licensing is normally associated with the production and marketing of goods.
  2. Franchising is administrated by law sanctuaries while licensing is directed by agreement law.
  3. Registration is required in franchising due to security law; on the other hand, registration is not required in licensing.
  4. Franchising is offered with territorial rights; on the contrary, licensing is not offered with territorial rights, and a licensee can sell similar products and licenses in the same area.
  5. Support and training are provided by franchiser while licensing does not provide any support or training.
  6. Trademark or logo is used by the franchisee and retained by the franchiser, whereas licensing can be licensed.
  7. Franchiser implement its control over franchise; on the flip side, the licensor does not have any control over licensee.
  8. Franchising needs ongoing assistance of franchiser; conversely, licensing involves the one-time transfer of rights or property.
  9. The fee structure of franchising is standard; on the contrary, fees of licensing is negotiable.
  10. Franchising tends to be a startup situation as regards the franchise, while in licensing, licenses are normally taken by well-established businesses.
  11. The duration in franchising is the agreement of franchise normally for 5-11 years, while the duration of agreement terms are 16-20 years common in licensing.

Conclusion

Above discussion concludes that franchising is generally related to the service business, whereas licensing is normally associated with the production and marketing of goods.