Franchising vs. Licensing

Difference Between Franchising and Licensing

Franchising and Licensing are two distinct terms even though there appear to be synonymous to each other. This results in a confusion arising between these two terms. It is a wonderful feeling that one gets while transforming himself from being an employee to becoming an owner of an enterprise. In case you are opting to go in for a small enterprise, it is solely dependent on vending the finished goods of a gigantic corporation. Usually two methods need to be adopted to jump start any business. One can attempt to obtain a license for vending the goods or services or becoming a franchise of the company. It becomes increasingly difficult to opt for a choice since these two terms are apparently the same while one hardly gives a thought to it, yet it is the individual concerned who has to make a valid choice between these two notions, which are two varying ways of conducting business with large companies that emanated during the eighties and have gained immense popularity and has become a phenomenon today.

One of the most well known and reputed modes of conducting business with corporate giants is through Franchising. There are several role models of such type of businesses and the most noteworthy names in this kind of business are KFC or McDonalds, where it is a pleasure to go in for an excellent serving of food. A Franchise is an outlet which is not taken care of by the company; rather it is somebody else who is handing the business after obtaining the power to use the brand name and the name of the outlet in lieu of shared profits with the giant companies. The veracity of the use of the company’s name and logo by the franchise has a definite bearing on the level of the alliance between the franchisee and the parent organization.

The company in turn reposes its confidence in the person who is entrusted with the responsibility to uphold the principles and superiority of the goods sold by the franchisee. As a result, the franchisee profits from the advantage of the ads put by the organization and receive well-favored customers on account of the fully developed market and the goodwill of the corporation.

One other popular mode of business is through Licensing. In this business, the association between the company and concerned licensee is not as close as it is in franchising. The owner in several ways not permitted to make use of the symbol or the brand name of the company. There have been several cases where the licensee is required to toil and struggle to create his own individuality in the market. While issuing a license to an individual, the company refrains from offering open regional rights and reserves the right to give more licenses in the same territory to various other people too. It surely brings more trouble for the person since he encounters fierce competition around him who is promotion the same produce. However, licensing is rather much better in financial gains since there are increased profits for the licensee. Since there hardly any affiliation, the licensee simply buys the goods and puts them on sale as his own.

Huge corporate companies hand down the choice of both Licensing and Franchising to an individual and it all depends on the choice that he opts for from the above to kinds of businesses. Of course, one has to weigh his pros and cons before he selects the mode of business. He could choose either of these types of business depending on how much of hard work he can put in and sell the goods of the company in the wake of competition lurking around him. In case he is able to toil he could select the choice of being a licensee and reap the heavy profits. However, if he is a laid back type of person, feeling at ease with the company’s ad campaigns and desires to have a fully prepared market, franchising would prove to be a better selection with low margins. There is no doubt that in franchising, plenty of backup is provided by the company through training and ads while a licensee receives no help at all from the company. A franchisee is required to pay a certain amount of royalty to the company each time a profit is made while a licensee does not have to share the profits that he makes. On the other hand, without the consent of the franchisee the company cannot have another franchisee though in licensing, the company may create more than one licensee in any geographical territory.

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