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Difference Between Franchising and Licensing


Franchising vs. Licensing

If you are looking for a new business and incidentally, both franchising and licensing opportunities are offered to you, would you know which one to pick? If you are a newbie and don’t have any idea, read on. It’s very crucial that you know exactly what kind of investment you are headed for.

The Difference

To correctly differentiate franchising from licensing, a definition is in order. Franchising pertains to the right to sell another company’s goods or services in a particular area. Licensing, on the other hand, allows an entity to sell a range of product or offer different services similar to that of the licensing company.

On a layman’s viewpoint, it will seem that the two concepts are the same. But business-wise, they are actually two different things.

Below are the five pertinent points on how franchising and licensing are different from each other – Franchising vs. Licensing:
  1. Franchising automatically gives business owners the right to display the company’s logo, brand, trademark, image, and name. In licensing, this isn’t always true, as each would have to be applied for accordingly. And in most cases, only the use of trademarks is allowed. All the rest, including authority over logo, name, and image, are not always granted.
  2. Franchising deals come with continued support and training from the head company or the franchisor. Licensing, on the other hand, is devoid of these. Licensees are required to do things on their own. The licensing company and the licensee are regarded as separate entities. On the other hand, that can actually be a good thing because in franchising, the head company can exercise a certain level of control over all the franchise owners.
  3. Territorial rights are in effect with franchising. And that is a basic right that is not available with licensing. When you license a particular brand, service, or merchandise, there will be restrictions as to how many businesses can offer the same thing within the same area.
  4. The law that governs franchising is called the Securities Law. For licensing, it’s the Contract Law. And these two laws are very different from each other too. Consult with a lawyer to understand them better.
  5. Buying a franchise tend to cost more than getting a license. So if money is of the element, the choice between these two options is going to be crucial.

These are the five major differences between getting a license and applying for a franchise. So if, at any point, you are faced with this tough decision, consider all these points and you are likely to arrive at the right choice.

There are indeed many factors that business owners have to look into when it comes to these two business concepts. For example, new business owners are better off choosing franchising, as the package offers both support and training. On the other hand, if you’re a seasoned businessman who can no doubt make a product grow by your own skills and talent, getting just a license is more feasible. Not only it’s going to be cheaper, you’ll also have full control of your business that way.

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