Is franchising or licensing the right way to grow your business? The answer depends primarily on your needs and goals, and a clear understanding of how each of these legal models works.
Growing a Business through Franchising
With franchising, your entire business model is essentially duplicated by someone else – your franchisee(s). The franchisee uses your brand names, trademarks and logos, and you typically provide franchisees access to your business’s intellectual property and operating systems.
In addition, franchising agreements grant the franchisee rights to an exclusive area or territory, to eliminate direct competition with other franchise locations.
In return, the franchisee pays a flat fee to join the franchise system, along with continuing royalties and other franchising fees as you set forth in your franchising agreement.
Franchising is a hands-on way to expand a business, as franchisors maintain a considerable degree of control over franchisee operations. Plus, franchisors provide ongoing support and participate in branding, marketing and training.
Growing a Business through Intellectual Property Licensing
Under an intellectual property licensing business model, you sell the right to use your intellectual property, trademarks or designs to someone else – your licensee(s). Licensing allows your licensees to distribute or market products under your brand name, in exchange for an upfront fee and ongoing royalty payments.
With licensing, you can regulate – to a degree — how your intellectual property is used. However, unlike franchising, you won’t have any degree of control over the business operations of the licensee, and will not have the same ability to provide assistance to licensees.
Intellectual property licensing agreements are usually non-exclusive, so that multiple competing companies can exist in same market. Think, for example, how products with professional sports logos are sold by many different companies and stores in the same area.
Is Franchising or Licensing the Right Expansion Plan for Your Business?
Franchising involves a significantly larger amount of oversight, regulation and cost than licensing. However, choosing a franchise model ensures you a higher degree of operational control, which can best protect the way your brand is used in commerce. If more overall control of the system and brand is what you are looking for, franchising may be the right model.
Growing your business through licensing doesn’t require as much of a time or monetary investment on your part as franchising. So, licensing can be a more cost-effective solution to expand, at least initially. If growth of your brand and intellectual property is your primary motivation, but without needing to control the licensee’s business, an intellectual property license may be the right model.
Franchising and licensing are two viable models you may consider, but they aren’t the only ways to grow as a business. There are several options from opening another company-owned location, distribution agreements, business opportunities, or looking for opportunities to target other markets. Or, you could diversify your product or service line.
The bottom line is that you have many different options to choose from for expanding your business. To determine which growth model is right for you, consult with a franchise law and business law professional.
The Franchise & Business Law Group can answer all of your questions and assist you with related legal matters. Contact our office in Salt Lake City, Utah, today to schedule a professional business consultation to discuss your intellectual property licensing and franchising options.