Toast Online Ordering

Knowing the Differences Between Franchising and Licensing

If you’re thinking seriously about entering the business world, there’s much to learn, and in addition to excitement about your endeavor, feeling intimidated is also a normal reaction. Once you’ve secured startup funds, you might want to look at franchising and licensing. Both are ways to get into the business world and give you a head start on the path to success. While there are similarities, there are also differences. Depending on your situation and experience, one of these systems can work wonderfully for you. But which one? Let’s find out.


A franchise is an agreement between two parties: the franchisor (owner/CEO/Controller of a company with multiple units or locations) and the franchisee (you). The franchisor sells the rights to their products and services to someone who will open up a separate and identical branch of the same business. Before this can happen, the franchise must comply with state law and the Federal Trade Commission. The franchisee pays the franchisor to open a location; in return, they will receive training, marketing, procedures, accounting systems, and more. They must adhere to the franchisor’s policies and business model and stay consistent. An example of a franchise would be McDonald’s which has franchises in countries around the world, but all adhere to the same rules and regulations the corporation sets.


While licensing and franchising are very similar, there are some key differences. Licensing involves a business granting limited rights to use its intellectual property. This is done in exchange for a royalty fee paid to the originator of the content. An example of licensing would be a company like Disney. They don’t manufacture all of the products related to their intellectual property. A business such as a t-shirt company will pay Disney a fee to print shirts with their characters. Licensing usually involves brands that are well-established and well-known among several people.

Which is Better?

Determining which is better all depends on the business model you’re attempting to emulate. If you’re unsure how to start, a franchising agreement might be your best option. You’ll get training and assistance and have a pre-existing formula that’s been successful in the past. If you feel that independence is more agreeable to you, consider licensing. You’ll have the right to use a trademarked property but have more freedom in your business practices.

There’s a lot to consider in the world of franchising and licensing. If you’re pursuing options with either, consider consulting the experts at Give us a call today at 833-372-6249!