It is wonderful to move from a worker to a proprietor. Hence if you are beginning a small enterprise pendant upon trading items of a big firm, there are two patterns of doing it. You may acquire a license to trade the items or services, or you turn out to become the firm’s franchise. It isn’t straightforward since the two phrases are almost identical, and you never offered a second opinion. Still, presently, the individual is required to choose between the two. Franchising and licensing are two business notions with big firms that developed during the 80s and have become well-known and conventional.
What is Franchising?
Franchising is the most well-known standard for business with big firms these days. No grown adult has yet to hear about KFC or Macdonald’s possessing great meals. However, the outlet into which most individuals go is not controlled by the firm itself and is controlled by a franchisee operating the business by acquiring the power to use the emblem and the firm’s name instead of allocated gains with the firm. When it comes to franchising, the very reality that the franchisee uses the firm’s name and emblem contemplates the level of association with the firm and the franchisee. The firm positions its loyalty in the individual, and he has to retain the grade and criterion of the item. He acquires the advantage of advertisement carried out by the firm. He acquired readymade clients due to the goodwill of the firm and an already formulated trade.
What is Licensing?
Licensing is another well-known standard of business. In this standard, the association between the individual and the firm is not closely knit as they tend to be in franchising. In some situations, the business proprietor is not permitted to use the emblem or brand of the firm. In many illustrations, the licensee has to labor very extensively to inaugurate his recognition at the trade fair. The firm does not approve sole territorial liberties to the licensee and maintains the liberties to approve more licenses in the same geographical region to other individuals too. This becomes trouble for the individual since he competes with the others trading the exact item. Licensing is useful in financial terms since the licensee has better margins. There is no strict association; the licensee buys and trades the items independently.
Difference Between Franchising and Licensing
Big firms possess both the standards to provide to an individual who decides to be connected to them. As a business proprietor, one has to determine from the two standards how he intends to go further. If the individual thinks that he can labor hard and trade the firm’s items in the thug of competition from others, he can decide to become a licensee, which provides a better gain margin for the individual. However, suppose the individual is good with the firm’s advertising and decides to possess a readymade trade. In that case, however, franchising is the better choice for him, with decreased margins. When it comes to franchising, there is excellent assistance from the firm to the franchisee when it comes to advertisement and externship, while there is no such assistance in the situation of licensing. When franchising, the individual has to pay a royalty to the firm each time they make earnings, but in licensing, the individual keeps the earning to themselves. In franchising, the firm can only produce another franchisee with the permission of the franchisee. Still, when it comes to licensing, the firm is unrestricted to trade its items via any quantity of licensees in the same geographical region.