1851

Franchising and licensing are both common methods used to grow a business. Although both options provide entrepreneurs with chances to expand their brand, generate income and establish a presence in new markets, they vary significantly in structure and implications.&nbsp;For example, Starbucks&nbsp;<a href="https://1851franchise.com/is-it-possible-to-become-a-starbucks-franchise-owner-2724683">primarily operates company-owned stores</a>, but it also provides licensing opportunities overseas, as well as at universities, airports and grocery stores in the U.S. Meanwhile, competitor Dunkin’&nbsp;<a href="https://1851franchise.com/how-to-open-a-dunkin-franchise-2719279">has franchising built into its business DNA</a>.If you're contemplating either approach, here's an in-depth examination of their key distinctions.<h3>What Is Franchising?&nbsp;</h3>Franchising is a business model that allows individuals or groups (franchisees) to own and operate their own businesses using the established brand, products and services of a parent company (franchisor). In exchange for the right to operate under the established brand and receive ongoing support for their business, a franchisee pays fees or royalties to the selected brand.&nbsp;In franchising, brands offer training programs to ensure that franchisees clearly understand and follow an established business model. Franchisees may also receive ongoing support, including assistance in marketing, operations and any company-wide updates.&nbsp;When it comes to contracts, franchise agreements can differ by brand. Typically, the agreement includes three categories of payments to the franchisor:&nbsp;<ul><li>The franchisee must purchase the trademark from the franchisor through an upfront fee.&nbsp;</li><li>The franchisor is compensated for providing training, equipment and other business-related services to the franchisee.&nbsp;</li><li>The franchisee pays ongoing royalties to the franchisor, or a percentage of sales.&nbsp;</li></ul>In most cases, franchisees also pay an initial franchise fee to the franchisor. This grants them the right to use the brand and access training and support.&nbsp;<h3>What Is Licensing?&nbsp;</h3>Licensing is a contractual arrangement where a licensor grants the licensee the right to use its intellectual property, such as trademarks, patents, copyrights or technology. In contrast to franchising, licensing is more focused on permission to use a specific aspect of a business instead of the whole business model.&nbsp;In a licensing agreement, the licensor retains less control over the licensee's operations, with limited involvement in day-to-day activities. The type of contract varies based on what is being licensed.&nbsp;<a href="https://www.investopedia.com/terms/l/licensing-agreement.asp?utm_source=1851franchise.com&utm_medium=article&utm_campaign=what-is-the-difference-between-franchising-and-licensing-2725162" target="_blank" rel="nofollow">Investopedia</a> notes that licensing agreements alleviate any disputes related to sales, issues of quality, or royalties.In addition to clearly detailing the parties involved, a licensing agreement also provides stipulations on exactly how the intellectual property can be used, such as:<ul><li>Geographical regions for property utilization</li><li>Time periods allotted for property use</li><li>Exclusivity or non-exclusivity of the arrangement</li><li>Scaling terms for new royalty fees based on property reuse</li></ul><h3>Key Differences Between Franchising and Licensing</h3>The most notable differences between franchising and licensing are:&nbsp;<ul><li>Control and Involvement:&nbsp;Franchising involves higher control by the franchisor in overseeing and supporting franchisee operations. Licensing grants intellectual property rights with less direct control by the licensor in the licensee's business.</li><li>Business Model: Franchising provides a comprehensive business model with operational guidelines, training and ongoing support. Licensing grants rights to intellectual property without necessarily providing a complete business framework.</li><li>Brand Consistency:&nbsp;Franchising emphasizes consistent branding across all locations for a standardized customer experience. Licensing may result in variations as licensees have more flexibility in adapting the brand to their needs.</li><li>Ownership:&nbsp;In franchising, the business belongs to the franchisee, who operates it for a fee. In licensing, the licensee pays for a specific product or rights without business ownership.</li><li>Regulations: Franchising regulations are typically stricter and governed by company law. Licensing regulations are governed by contract law.</li><li>Support:&nbsp;Franchisors often provide extensive support in setting up systems for franchisees. Licensing agreements usually do not come with as much support.</li></ul>When deciding whether to go with franchising or licensing for your next business venture, consider factors such as your goals, resources and the level of control you desire.&nbsp;If you're looking to get into franchising, we can help! Whether buying your first franchise or building your portfolio, 1851 Growth Club will guide you through the buying process with honesty and integrity.&nbsp;<a href="https://1851growthclub.com/?utm_source=1851franchise.com&utm_medium=article&utm_campaign=what-is-the-difference-between-franchising-and-licensing-2725162" target="_blank" rel="nofollow">Reach out today to learn more</a>.

What Is the Difference Between Franchising and Licensing?

Franchising and Licensing: What is the Difference?

1851 Franchise

While franchising and licensing both approaches offer entrepreneurs with opportunities to grow a business, they have some significant differences in their respective models. 

what-is-the-difference-between-franchising-and-licensing

Mainland

Mainland Secures Nearly $10 Million in Media Value for Franchise Clients in Early 2025

mainland-secures-nearly-10-million-in-media-value-for-franchise-clients-in-early-2025

Mathnasium

How These Arizona Mathnasium Learning Centers Franchisees Expanded to 10 Locations 

how-these-arizona-mathnasium-learning-centers-franchisees-expanded-to-10-locations

BoConcept

BoConcept - Home Furnishing Franchise Agg - Santiago Sideboard - 1851 Franchise

Home Furnishings Business: BoConcept Introduces Santiago Sideboard by Morten Georgsen

home-furnishings-business-boconcept-introduces-santiago-sideboard-by-morten-georgsen

BooXkeeping

BooXkeeping Franchise Expands to Seminole County, Florida, with New Franchisee Ross Duhaime

booxkeeping-franchise-expands-to-seminole-county-florida-with-new-franchisee-ross-duhaime

Sylvan Learning

How Sylvan Learning Positions Franchisees for Institutional Partnership Success

how-sylvan-learning-positions-franchisees-for-institutional-partnership-success

Buying a Franchise Masterclass

 Franchise Opportunities

Get Support Buying a Franchise

How to Buy a Franchise White Paper

How to Buy a Franchise

How to Sell Franchises

How to Grow a Franchise

Find a Franchise Supplier

1851 Franchise Opportunities

Franchisor News

Franchisor Power Rankings

FranCamp Mastermind Summit

Franchise Resources

What ALEC-Laffer's Report Means for Franchising

Website Awards

Power Rankings

About 1851

Advertise on 1851

Contact 1851 Editorial

Terms of Use

Login

facebook

instagram

twitter

linkedin

youtube

Hooters - Bankruptcy Chapter 11 - 1851 Franchise

Hooters Prepares for Bankruptcy Amid Financial Struggles

hooters-prepares-for-bankruptcy-amid-financial-struggles

Burger King’s Parent Company Restructures Operations in China and the U.S. To Drive Growth

burger-kings-parent-company-restructures-operations-in-china-and-the-us-to-drive-growth

Papa Johns Faces Potential Takeover as Turnaround Efforts Continue

papa-johns-faces-potential-takeover-as-turnaround-efforts-continue

1851 Agg - McDonald's Sales Decline Expansion Continues - 1851 Franchise

McDonald’s Franchisees Feel the Pressure as Sales Decline and Expansion Continues

mcdonalds-franchisees-feel-the-pressure-as-sales-decline-and-expansion-continues

Restaurant Industry Set to Hit $1.5 Trillion in Sales in 2025 Despite Economic Pressures

restaurant-industry-set-to-hit-15-trillion-in-sales-in-2025-despite-economic-pressures

Paris Baguette Ranks Among Top Franchises on Entrepreneur’s Franchise 500® for 2025 - 1851 Franchise

Paris Baguette Ranks Among Top Franchises on Entrepreneur’s Franchise 500® for 2025

paris-baguette-ranks-among-top-franchises-on-entrepreneurs-franchise-500-for-2025

DOJ FTC Antitrust Guidelines - Franchise News - 1851 Franchise

DOJ and FTC Issue New Antitrust Guidelines with Implications for Franchising

doj-and-ftc-issue-new-antitrust-guidelines-with-implications-for-franchising

Taco Bell Joins the Beverage Boom With New Live Más Café Concept

taco-bell-joins-the-beverage-boom-with-new-live-mas-cafe-concept

Franchisee spotlight featuring Ian and Dick Rydholm with gradient blue background and Sylvan logo

Ian and Dick Rydholm Celebrate 30 Years of Transforming Lives Through Sylvan Learning in El Paso, Texas

ian-and-dick-rydholm-celebrate-30-years-of-transforming-lives-through-sylvan

Florida Franchisee Reflects on Success and Growth with Sylvan Learning

florida-franchisee-reflects-on-success-and-growth-with-sylvan-learning

Domonique Downing - Big Frog Franchise - Fayetteville, GA - 1851 Franchise

Coca-Cola Scientist Finds Path to Autonomy with Big Frog Franchise in Fayetteville, Georgia

big-frog-franchise-fayetteville-georgia

What Is the Difference Between Franchising and Licensing?

MORE STORIES LIKE THIS