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Franchise Basics: Understand the Difference Between a Franchise and Product License

Many people do not fully understand the difference between a franchise and product license agreement. In this short franchise basics tip, we will explore the pros and cons of each, so the small business owner can decide on the most desirable course of action.

-In both cases the small business owner typically has the benefit of a product or service that has already been tested on the market. With the typical franchise, the product or service is usually part of an entire scope of services that may include all or a part of every business function such as advertising, training, location selection, purchasing and even pricing.

-The benefit of buying a franchise is the comprehensive support, training, expertise and reputation of the franchise but the trade off is often the lack of flexibility.

-A product license agreement also allows the small business owner to use a proven product or service but unlike a franchise, they typically use it within an existing business structure. This typically provides a greater degree of flexibility related to most other business decisions but the trade-off is the difficulty in knowing how any product or service will be accepted outside of the original use or population.

-Franchise fees are typically higher than those of a licensing situation but don’t expect the support, training or other business “know how” associated with buying a franchise. Because there are fewer government and other regulatory requirements to offer a product or service for licensing, it can be more difficult to fully evaluate a license opportunity.

It is always advisable to consult with an attorney before making any business related decision, but especially when attempting to navigate the waters between purchasing a franchise versus a licensing opportunity.
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