Investing in a business is a big step, which is why it’s important to consider all aspects of it carefully.
This process can be complicated and have many confusing details. It’s easy to become lost in the legal jargon and make bad decisions, especially if you don’t understand what the business opportunity actually is.
One of the most common questions people ask is about the difference between franchises and licensed business opportunities. These two options might look same on the surface, but they aren’t and it is important to understand the difference. Here’s what you need to know about franchisee and licensee businesses:
Licensed business opportunities involve rack fillers. The manufacturer or their affiliated company will provide products or services to dealers, stores, vendors, etc. The licensee sells the products and service while the company provides locations, outlets, accounts, or similar resources. The licensee provides these services to clients on behalf of the original manufacturer so they’re selling their services.
Franchises are similar, but the key difference lies in the relationship between the licensee/franchisee and the company. This has a big influence on how the business is run on a day-to-day basis, which is why it is an important factor to note.
The difference between franchises and business opportunities are very clear if you take an in-depth look at the options. Here’s a glimpse of these differences in detail:
Businesses with a license can develop their own branding and don’t need to use the company’s logos or colours. They’re not identified by the company’s trademark. Franchises, on the other hand, need to follow the company’s trademark and use all branding during day-to-day operations.
Not using the branding offers some measure of independence but you don’t get the immediate boost an established brand can provide. On the other hand, an established brand can place some limitations on marketing, promotion, and day-to-day operation. It’s important to consider what your priorities are before choosing one option.
Licensees need to find their own way around marketing, sales, and other aspects of running the business. They don’t get much support from the originating company, which can make it difficult to get the traction they need to succeed. Companies only provide products and services, but nothing else.
Franchisees receive in-depth training and consistent support in all aspects of the business, ranging from day-to-day operations to marketing campaigns. The franchisor will communicate regularly, provide comprehensive support systems, and help you expand your business as well. In many ways, franchising is a form of partnership.
Licensees can handle different products or services from different companies, even if they’re rivals. For example, a cosmetics store will have products from different brands and don’t need to sell one brand exclusively.
Franchises are almost always exclusive or semi-exclusive so you can’t sell products or services from other companies. Franchisors also impose a minimum standard of performance so franchisees need to reach the set level as a part of their contract.
Licensees purchase products from the licensor and sell it, so there are no fees or royalties involved. For example, you purchase products from the company at a special rate and sell it to customers at retail prices, the difference between the purchase rate and retail price is your profit.
Franchisees pay royalties based on the gross sales of their business, which means you’re not paying for the items you purchased but for the items you sold.
If you want to know more about renewing a franchise business or want some advice, feel free to get in touch with us at The Franchise Institute. You can call us on 1300 855 435 or fill in this contact us form and we’ll reply as soon as we can.
Thanks for reading,
The Franchise Institute Team
1300 855 435