Most people have heard of franchising and licensing but not everyone understands what the terms really mean and what the differences are. Both can offer opportunities to Mums who are looking to start a business.
Franchising and licensing are both ways for businesses to leverage their success. They do this by allowing other people to use the knowledge, branding, intellectual property or business model that they’ve developed. These methods can offer a route to expansion in businesses that are “local” by nature and so don’t lend themselves to national expansion.
Licensing takes quite a hands off approach. The licensor grants someone permission to use something, a design or intellectual property, for a set period. They don’t offer any on going support to the licensee and have no say in how the businesses are operated. Licensees usually have no limits to the area in which they run their businesses and don’t Pay management fees.
Franchising is more like running an independent branch of a business. Franchisees are usually granted the right to run the business in a specified territory, for a specific period of time. There is an initial payment to purchase the franchise (anything from a few hundred pounds to hundreds of thousands of pounds). This is then followed by an ongoing management fee, either a set amount or a percentage of sales. Franchisers retain much more control than licensors and franchisees are usually expected to run the business in a particular way. They often follow a manual, to ensure consistency across franchises. Franchisers will provide ongoing support for their franchisees to make sure that they are able to operate correctly. Franchisers also sometimes make additional money from franchisees by selling items that they use to run the busines. These might be branded merchandise that franchisees can sell on. Franchisees can usually sell on their franchise although the franchisor may include some limitations on this. They might insist on a certain amount of time running before it can be sold and will probably want to approve the buyer.
If you’d like to read more about Mums running franchises check out Claire’s story of running a Talking Tots franchise or my story about running a Mum2mum Market franchise. You could also have a look at our franchise business types for mums.
Both licensing and franchising offer a way in to business using something that has been tried and tested. Licensing can work well if there’s a great product or service that you want to bring to a market. Franchising allows you to start a business that you know has the potential to be successful along with getting some support to run it. You can find out more about franchising from The British Franchise Association.
If you’re trying to decide if a franchise business is right for you our course “Business for Mums: Finding the right idea for you” can help.