Whether your business model is well-established and powerful, and you’re considering expanding it further via local entrepreneurial partners, or you want to give your local business a push in a more secure direction, there are two paths you can consider – licensing and franchising.
Either path can get you a significant return on investment, but you need to be aware of the advantages and shortcomings of each model before you make your decision.
Here are some of the main differences between these two business models that will help you choose your business path.
The Basic Concept
Franchising is a business model where the original company – the franchisor, will permit a local company – the franchisee, to use the model and the original brand in an independent branch, for a certain fee. With franchising, the franchisee gets continual ongoing assistance from the franchisor, as well as the complete set of norms they have to adhere to.
On the other side, licensing is a legal arrangement in which an original organization – the licensor, sells its intellectual property or the know-how to a local company- the licensee, and gets royalties in return. Licensing is a single time transfer of intellectual property or the know-how, and most often, training and support are not included. While the licensor may have some control over their intellectual property, they don’t have control over the business practices of the licensee.
One of the basic things to ask yourself when deciding whether you’re in for a Yard Greeting Business Franchise Opportunity is how high you value being in control.
How licencing functions
If you opt to become a licensor, you’ll choose a course that is easier to follow, as you’ll have significantly less responsibility and legal obligations, and put in less time and effort. The process is much simpler and faster than franchising, but it will probably result in making less profit.
Even though licensors don’t always provide training and support, you can still ensure that your licensees are keeping your reputation up high by providing them these services as well. This is very important if you’re licencing to make a brand out of your business, and you have certain requirements and broad guidelines to pass onto your licensees.
A great example is ThorDuct, a licensor that provides training and support for companies that want to become manufacturers of EN tested and certified ductwork.
If your business has sophisticated operational and technical infrastructure to function well, you can significantly benefit from having the right to use, make or sell under a licence of a well-known and reputable brand.
Furthermore, by choosing a path of licencing, you’ll have total control over the way your business functions, and be in charge of decision-making. This is extremely important to those who would rather choose to have such freedom, over a safety net of a franchise.
How franchising functions
To an original company, franchising brings a high level of control over a local company. Still, it uses a lot of its resources, as it needs to provide continual support and audit of the franchisee’s business practices.
If you want to become a franchisor, there are several things you must take into account:
- You need a detailed operating manual to shape all relevant business practices.
- You need to control how the franchisee follows protocols and guidelines.
- You need to provide your franchisees the support they need to succeed.
- You are responsible for marketing, branding, development, and innovations.
On the other side, benefits are huge –as a franchisor, you’ll have a chance to expand your business to new locations without having to make a hefty investment.
Setting up a franchisee allows an individual to become self-employed by investing in a fully functional business system, and getting all the training and support they need. Franchisees also get the right to use the Trade Mark, logos, trade names, as well as all the secrets and know-how of running a well-established business. They usually get a ready-made customer base and a kind of monopoly in their own economic territory, and thus their risk is significantly reduced.
What franchisees lack is the freedom to make their own business decisions. To get an idea of the level of control a franchisor has on the functioning of a franchisee, McDonald’s is a perfect example.
When you walk into a McDonalds’ restaurant, no matter in what corner of the planet it’s located, customers expect to get exactly the same feel and experience, from the uniforms the employees wear to the way they interact and the techniques they use to upsell or cross-sell their products.
If you don’t mind such a level of control over the business you’re running and like the idea of having your own safety net, opting for a position of a franchisee can be great for you.
These are some basic differences between franchising and licencing that you need to be aware of when making plans for the further growth of your business.