Creating a successful business growth strategy requires an intense business market research, risk-bearing capabilities and a driving force to accomplish targeted goals. Australia holds one of the most competitive markets for new entrepreneurs. Whether it’s about commencing a service-based business in Melbourne or open a café in the busy streets of Sydney, ensure you conduct a proper research before investing money.

When determining success, two most common strategies that come to the mind are franchising and licensing. Both options enable new businesses to expand without direct ownership of new locations. Opting for the right strategy focuses on key aspects, such as scalability, control, risk and investment, to generate desired outcomes. In today’s guide, we will discover key differences between franchising and licensing to help you make a well-informed decision:

1. Basic Understanding: Franchising Vs Licensing

Under franchising, a business or franchisor lets another party or franchisee to use its brand, business model and processes in exchange for royalties and fees for running an existing business. The Franchisor has the control over the franchisee’s operation.

In Licensing, A business or licensor grants a licensee the right to use its brand name, property and product for a specified period. This means the licensee has the flexibility to operate the business they way they want while complying with agreed terms and conditions. You can also opt for an existing business for expansion after doing a proper research.

2. Level of Operation Control

There is no denying that franchising in Australia requires strict obligations to maintain brand’s identity while keeping processes and model intact. The franchisor provides in-depth training, operational and administrational guidance and market support to ensure brand consistency across different locations.

Licensing, on the other hand, enables the licensee to use the brand but have more flexibility in how they run their business. This means the licensor can’t dictate daily operations. If you want a unique brand experience, franchising is best but for flexibility, then licensing can be an ideal option for you.

3. Initial Investment and Financial Requirement

Franchising requires a franchisee to pay an upfront franchise fee, ongoing royalties, and marketing fees. In return, the franchisor offers support, training, and branding advantages.

However, licensing involves a one-time licensing fee or periodic royalty payments. The costs are lower than franchising, as licensees do not receive extensive operational support.

If your goal is to increase revenue from expansion, franchising is a lucrative choice. However, if you want quick expansion with minimal financial obligations, licensing is more cost-effective. You can even grow you business online without any stress.

4. Revenue Growth and Long-run Growth

Franchising is a better option as it generates higher revenue from franchisee fees, marketing fees and royalties. It provides a consistent income stream but needs a lot of management elbow grease for higher profits.

However, Licensing earn revenue via licensing fees and royalties and doesn’t generate consistent income.

If you want a scalable business with ongoing revenue, franchising is great for long-term returns, while licensing is great for low-cost expansion.

5. Business Risk And Liability

Franchisors face higher risks, including legal disputes, financial commitments, and operational responsibilities. They must support franchisees and protect the brand’s reputation.

Licensors have lower risk since they do not control day-to-day operations. However, they risk brand misuse or reputation damage if the licensee does not uphold quality standards.

Wrapping Up

Franchising and licensing are great business expansion options depending on different conditions, business goals, and market research. Follow these tips and take your business in Melbourne to the new heights of success.