You’re a business owner operating a successful brand. You see a growing need for your products or services and want to expand into new markets. But you might not have the manpower to open up a second shop to manage on your own. How can you respond to the rapid growth of your business while reaching new markets across your city, state or country?
Establishing a franchise or licensing arrangement might be of appeal.
You may be familiar with some of the most successful franchises that have dominated the globe such as McDonalds, Starbucks or 7/11.
Due to the popularity of global franchises, it might immediately seem like the way to go for growing your business. But a license agreement might be a better option for you.
What is the difference between a franchise and a license agreement?
The difference can be largely summarised as more control versus less control.
In short, franchisors have more control over franchisees and are involved in the everyday running of the business by prescribing guidelines, rules and training of franchisees. It is essentially designed to be a duplicate of the original brand, shop or outlet or business. The franchisor is also usually responsible for providing marketing, human resourcing functions and business development support for their franchisees.
On the other hand, a licensing arrangement is more of a ‘set and forget’ situation. The licensee acquires rights to use the property of the licensor, be it the brand, logo or other physical property such as teaching materials, and is only restricted by the licensor by the extent to which they can use the brand in their product. Licensors are often given full or significant reign in how they choose to market the product and grow the business.
Let’s say the Los Angeles Lakers want to grow their brand globally. They want people to wear the Lakers logo on articles of clothing or other merchandise with a view to increasing visibility and fan base. It is unlikely that they will create a franchise in Sydney dedicated to selling Lakers merchandise because they may not know the Australian market well enough or because it might transpire that the Australian market for such merchandise isn’t sufficient large to justify the roll out of such a niche product.
An option is to license the Lakers logo to a manufacturing company in Australia who manufactures Lakers hats and t-shirts and distributes them to the Australian market. This licensee might have a better knowledge of the Australian market and has the autonomy to market the product as it chooses (e.g. selling to retailers such as Culture Kings to sell apparel). In this case, the Lakers have nothing to do with the commercial agreement between the licensee and Culture Kings, but they can derive the benefit of growing their brand with a ‘hands off’ approach.
The table below identifies some of the major differences between the two systems in the table below. These are only a few of the factors that you should consider when choosing to grow your business. Reach out to the team at BlackBay Lawyers for personalised advice on which system and the types of terms will be best to grow your business.
McDonalds, Guzman Y Gomez, IGA, Endota Spa.
F45, emojis on Oodies, Les Mills classes at Fitness First.
Monopoly partnering with McDonalds to attach monopoly stickers to McDonalds packaging to give customers opportunity to win prizes.
Social media influencers or celebrities attaching their name to a particular collection of clothes or line of products e.g. Kanye West x Adidas.
Written by Claudia McDonnell and Victoria-Jane Otavski