Both licensing and franchising are effective ways to expand a business. There are many similarities. Some franchising agreements look more like a license agreement under the law. (Just to make things more confusing!) Payments are made in order for a business to use intellectual property, whether it be the brand, design, or likeness of a product. Franchising Franchise owners pay for the right to use the franchisor brand, logo, marketing materials, and employee training systems to operate their business. Support and training is provided by the franchisor to maintain quality control and to protect the brand. The logo and trademark is used by the franchisee. The franchisor has ownership of them as well as the entire business model. The operations and procedures of a franchise are controlled by the franchisor. Essentially, a franchisee is taking a successful business model and replicating it under the strict supervision of headquarters. Licensing In licensing, usually, a larger company is selling the right to a smaller company to use its trademarks and logo in a non-exclusive contract. This means that the licensing company can control how the trademark is used, but not the business operations of the licensee company. Licensing is a very common business practice with big-name companies. Famous designers want to sell a clothing line directly to customers, so they partner with a large chain such as Macy’s and their name and label are sold exclusively by that store. Disney is another example of a company that retains millions in licensing fees for smaller companies that wish to use their characters. Starbucks vs. McDonald’s An interesting example of licensing compared to franchising is looking at the success of Starbucks versus McDonald’s. Most people may assume that Starbucks is a franchise, but it is not. A business owner who would like to own a Starbucks can only in certain instances own a licensed shop. These shops are in airports, at colleges and universities, and within certain stores, such as Target. The owner pays a licensing fee to use the Starbucks trademark but has no ownership of the company. On the other hand, it is possible to buy a McDonald’s franchise for a large sum and own that specific shop as a franchise. There are many more ins and outs of licensing and franchising, but, these examples should provide a better understanding of the differences and overlap of the two business practices. Always ask experienced professionals if you would like advice and clarity to help you implement your next business idea.