Businesses are opening in the U.S. at a record pace, meaning if you already own one, it’s time to start expanding.
To do so, you often turn to either licensing or franchising. But what’s the difference between the two? When placed next to each other, which one works the best for you?
That’s what we’re here to answer today. Read on to find out more about licensing vs. franchising and whether one is better for you than the other.
What is Licensing?
Licensing is the process of paying someone else for the use of intellectual property. While you do pay, you can run your business in any way you like. Examples of this might be the use of brands, trademarks, and technology.
Maybe Disney allows McDonald’s to use their brand to promote their new film via Happy Meals. It could also be Microsoft licensing their brand for each Microsoft Office user.
It’s basically granting someone a limited right to a specific asset. You can set parameters over your license, but otherwise, you don’t have much ability to control what the other person does with it.
Benefits of Licensing
One of the benefits of licensing is that you can obtain passive income just by lending your name brand to others. It also creates new business opportunities and facilitates certain growth.
It also creates an easier entry into foreign markets. All in all, licensing offers plenty of benefits in terms of expanding your business.
What is a Franchise?
On the flip side, franchising allows the franchisor to have greater control over the establishments they work with. It allows the franchisee to develop, establish, and copy the operations of the franchise business.
Trademark licenses allow the franchisee to use a specific brand name for their business. Think of McDonald’s again as an example.
There’s a greater degree of control here for the franchisor. It also lets them obtain a fee from businesses that use their franchise trademarks.
Benefits of Franchising
One of the benefits of franchising is the lower use of capital to run your operation. Because the individual franchises are often responsible for those smaller details, it gives you more flexibility.
Franchising is also known to increase the speed of your brand’s growth. It also helps motivate your employees and managers.
Franchisors will also benefit from the lower risk associated with each franchise. It’s a more “hands-off” approach than having to deal with each individual business, and it generally calls for less staff.
If you’re looking for information all about franchise financing, check out this link.
Licensing vs. Franchising: The Best Fit For You
The time it takes to set up licensing vs. franchising agreements can vary. Generally speaking, figuring out how to start a franchise takes more time and resources.
Which one you choose ultimately depends on how much control you want over your new establishments. It also affects the amount of assistance you get when you’re running your business.
Licensing provides more brand-name recognition, but it doesn’t give you much help in terms of actually running the joint with franchising. Picking an option will vary depending on how you want to expand your operations.
Leverage Licensing and Franchising Today
How to expand your business heavily depends on licensing vs. franchising. Use this guide to help you make the right decision today!
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