Licensee vs. Franchisee: Which Works Best?

Are you planning to become an entrepreneur yourself? Starting your own business or becoming your own boss in a way is definitely amazing and it can end up being everything you imagined it to be and more. There’s plenty of things to love about being an entrepreneur. However, there are plenty of steps to take and decisions to make on your road to success. One such decision involves the question of licensee vs. franchisee. Essentially, you have to decide which option works better for you and your future business practices. 

The Difference Between Licensee and Franchisee

In order to make the right decision for yourself, it’s crucial that you’re aware of the main differences between licensee and franchisee. Essentially, both agreements allow relatively big and renowned companies to license or contract their brand for your own small business in exchange for a certain fee. However, the two differ in the level of autonomy as well as the support that you receive.

Becoming a franchisee means that you’ll operate under a specific franchisor. Think about being the individual owner of one McDonald’s under the umbrella of the main CEO. In that respect, you get the rights to use everything related to the particular franchise. For instance, every McDonald’s menu has to be the same, with the same Happy Meal toys and the same employee uniforms. Also, you get the promotional materials that are the same for every franchise of that brand as well as effective support. On the other hand, your creative and managing freedom is considerably limited. 

Opting for a licensee agreement allows you to open up your own individual business with the opportunity to buy the license or rights for using other brands for profit in your own business. For example, if you want to start a jewellery business where you’ll get to sell your own creations, you can buy the rights to create Harry Potter jewellery from Warner Bros. Without the license to use Harry Potter characters, imagery and quotes for your own profit, you could get into a lot of legal trouble. As you can probably guess, you have all the creative and managing freedom, but you also have to deal with your own promotional materials and other essentials for starting a completely new business. 

The Question of Money

You might have a clear idea in your head of what you want from your business endeavours. However, if you still have to make your decision and that decision will be heavily affected by the issue of money, you should know that fees for license agreements tend to be more affordable compared to franchisee agreement fees. Of course, you should never make this choice based on money only. That said, it’s crucial that you go over the benefits of both licensee and franchisee agreements so that you have a whole picture. 

Benefits of Becoming a Licensee

Aside from a more cost-effective fee, becoming a licensee has its own fair share of benefits. For starters, there’s a lot more flexibility to this particular agreement. Furthermore, the licensee relationship can be very effective for people who are looking for a collaborative contract

Even though the support is not on the level of a franchisee, you can still count on a good amount of support when it comes to the overall directions and recommendations of using the licensor brand for your own particular business. In that respect, don’t hesitate to ask plenty of questions, as most licensors enjoy providing their own advice on how to market and use their brand. 

This isn’t all though. When you become a licensee, you also get access to a range of resources that can help you boost your own business. These include demographic research, operating website and photos as well as potential competitor analysis. 

Benefits of Becoming a Franchisee

It’s true that you might have to provide a larger initial investment when becoming a franchisee but the support you can count on from the franchisor is truly great. Basically, you can completely count on all already established brand concepts as well as the entire marketing strategy. Not to mention that you get a clear insight into the customer base and target demographics for your own area. Also, competitor analysis is on a whole other level thanks to the already established power of the franchisor

One of the most tempting and important benefits includes the lower risk of failure compared to starting your own business from scratch. And in case you need financing and loans from the banks, working with an established organization will only make this practice more efficient and possible. 

Still, keep in mind that being a franchisee also comes with more rules and regulations to follow compared to a licensee. Of course, if you’re not someone who cares about this stuff and actually enjoy a structured business-running concept, this might not be an issue for you at all. In general, as a franchisee, you have to stick to the already established concepts, marketing strategies, operation practices and even suppliers that the franchisor uses. 

There’s No Right Answer Just Waiting

No one can make the choice between becoming a licensee or franchisee for you. In the end, it would definitely be smart to get the professional help and maybe ask a lawyer to look over the different agreements so that they can advise and guide you on all legal and financial matters. Also, make sure to be very open with your lawyer as they also need to know more about your background and preferences in order to give you their honest opinion. 

In general, investing in a licensee or franchisee agreement is still a smarter and more efficient road to take when trying to start your own business. This particular investment tends to pay off a lot in the long run compared to an independent and new business that has no support from any other big brand. That said, you should definitely reap the benefits from opting for one of the two options as you will be able to skip some steps on your road to success compared to new entrepreneurs who are starting off without anyone’s help.

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