Franchises Versus Licensed Business Opportunities

Posted on April 16, 2007 by

When it comes to business there is a whole lot of lingo out there that can be confusing. One example is that of a franchise or a licensed business opportunity. Anyone looking for business opportunities must understand what a franchise is and what a licensed business opportunity is. This brief overview will help you understand the differences.

First of all, a franchise is simply a business model that has been proven to be effective. The franchisor who created this business model will then sell you the rights to use the business model as well as the services or goods that particular system sells. Once you pay your franchise fee you will become a franchisee and have a relationship with the franchisor to assist you with the system. A franchise agreement will be signed and this agreement outlines the assistance the franchisee will receive through the franchisor and the business model. A franchise owner must pay royalty fees to the franchisor. Also, a franchise owner must follow the business plan exactly as it is. If any changes are to be made they must first be approved by the head office.  Of course, with a franchise you will get a lot of support and a readymade plan to follow. Some franchises are better than others at helping their franchisees become successful, but most do everything possible because the name of the franchise is at stake. Marketing fees are also paid by most all franchisees to the franchisor. That’s because the franchisor is marketing and advertising the product/service to the benefit of all franchisees and they pay a yearly fee towards that.

A licensed business opportunity is a business opportunity not unlike a franchise, but it is set up a bit different. First of all a licensed business does not require royalties nor does it require that you pass off all decisions with the head company. A licensed business opportunity is generally significantly more affordable than a franchise. That’s because the license is all that is purchased, not the entire business model so there are no franchise fees, marketing fees, or royalties to pay. Most licensed business opportunities also do not require marketing fees. Many have graphics that may be used with instructions, but no set marketing fee that must be paid.

As you can see franchises and licensed business opportunities are not the same thing. They both offer the opportunity at a new business, but the way that business is managed and the fees that must be paid in association with the new business are significantly different. Keep in mind that there are benefits and drawbacks associated with both franchises and licensed business opportunities. You must weigh the advantages and disadvantages before making a decision to go ahead with any particular franchise or licensed business opportunity.