One of the biggest realities about franchising is that it isn’t for everyone. An entrepreneur may have all the groundwork laid for business growth. However, without the most appropriate strategy in place, he or she is less likely to tap into full growth potential. The good news: there’s more than one way to grow a business. And, with careful evaluation, entrepreneurs can identify the expansion vehicle that best aligns with their needs and goals.
The possibility of licensing is explored almost as frequently as franchising. For a fee, licensors allow licensees to use the business name and trademark.
Curious about how the nuts and bolts of licensing stack up to those of franchising? Here are a few key differences:
- Earnings: Each franchisee pays an initial franchise fee. This fee could range from anything as low as $1,000 to $100,000 or more – just to get a foot in the door and learn the intricate details of that business. Franchisors will then collect a reoccurring royalty, which is predicated on gross sales. Licensing differs in that licensees forgo an initial fee and pay a heftier royalty.
- Legality: Though tax implications drive the U.S. government to draw a thin line between licensing and franchising, many entrepreneurs prefer the former, as it does not require them to comply with the FTC’s franchise disclosure regulations.
- Control: Franchising suits those who feel strongly about maintaining consistency across all aspects of their business. Franchisors work closely with franchisees to teach the ins and outs of their replicable system. This constant educational component paves the way for a continuing relationship between franchisor and franchisee. On the contrary, licensors have no hand in how licensees run their business. Licensees are free to sell or manufacture under the auspices of the licensor as they wish.
No matter which expansion vehicle entrepreneurs choose, the key to successful growth is ensuring you have a strong, proven business model that is worthy of investors’ trust and money. I’d love to speak with you about how to discover the best growth strategy for your business! Connect with me at firstname.lastname@example.org or call 203-542-0778.