Licensing and Franchising Meaning
Understanding the licensing and franchising meaning is important if you want to grow your business.3 min read
Understanding the licensing and franchising meaning is important if you want to grow your business. Basically, franchising means that you're allowing another person to duplicate your business in another location, and licensing is when you allow someone else to sell your products. With both licensing and franchising, you will receive a fee from the person duplicating your business or selling your product.
Why Choose Licensing and Franchising?
Expanding your market is the biggest benefit of franchising and licensing, and with these arrangements, you may be able to generate more revenue. Both business owners and people that want to break into a profitable market can benefit from franchising and licensing.
For example, when you license your product, you can increase its exposure, and your licensee will be able to sell a product without worrying about designing and manufacturing. Licensing and franchising can help you break into new markets that you may not have been able to access otherwise.
Basics of Licensing
Licensing is an agreement between two parties, a licensor and a licensee. The licensor, who owns a piece of intellectual property, allows the licensee to use this property in exchange for a licensing fee.
Licensing fees can come in several forms:
- Lump sums.
- Continuing royalties.
- A percentage of what the licensee makes using the intellectual properties.
One of the main goals of companies is to create items that they can license to individuals and businesses.
Businesses can benefit from licensing in a variety of ways:
- Improving their market share.
- Shaping customer preferences and developing loyalty to the business's brand.
- Optimizing exposure.
- Generating revenue.
A business that licenses another business's intellectual property is known as a licensee. When a licensor and a licensee want to enter an arrangement, they would use a licensing agreement, which is a type of contract that outlines the licensing fee and how the intellectual property can be used.
What Is Franchising?
If you are the owner of a profitable brand name or business model, then you might want to consider franchising your business. With franchising, you, the franchisor, allow another person, the franchisee, to open and operate a branch of your business in exchange for a fee. After paying this fee, the franchisee has your permission to duplicate your entire business operations.
In general, the franchisee will first pay you a flat fee to replicate your business, and then may need to pay you ongoing fees such as royalties. Franchisees also may need to pay the franchisor for supplies and marketing materials. Many of the world's most popular fast food restaurants have grown from small organizations to global brands through franchising.
Virtually every type of business can be franchised. Typically, already-established businesses that have achieved a good amount of success but have an interest in expanding their market share will offer franchises.
An entrepreneur that opens a franchise can receive multiple benefits not available when starting a new business:
- Instant recognition with customers.
- Already-established employee training.
- Built-in support for marketing and advertising.
Large companies are commonly both licensees and franchisors.
Benefits of Franchising and Licensing
Franchising and licensing both provide enticing benefits to businesses. For instance, with these tools, you can access multiple revenue streams with almost no underlying costs, making it much easier for you to increase your business income.
With licensing and franchising, other people are marketing your business for you and paying you for this privilege. In addition to possibly lowering your marketing costs, this can help your business break into new, previously inaccessible markets. Licensing can be especially beneficial if you're looking to break into foreign markets but are also worried about the risks and costs of development.
If your business already has an established brand and you want to expand your market share without opening any new locations, licensing can be a good solution. By licensing your products, you'll be able to reach new customers without having to cover the expense of establishing a new distribution channel or opening a new location.
Licensing is the cost-effective way of growing your business's brand. Making customers more aware of your brand is another big benefit of licensing. As brand awareness grows, its value will increase, and your business will be able to generate more revenue.
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