Business Licensing or Franchising, Which Should You Do?

Franchising and intellectual property licensing are some of the trickier ways to make money online. Business licensing requires deep pockets and a high degree of business acumen. If you know what you are doing and have the money to make it work then it can be one of the most profitable online business opportunities, however.

Business licensing in either form involves making use of someone else’s ideas and prior work, along with the value they have built up for their brand. The difference between business licensing and franchising can be subtle, as they are heavily interrelated. The best way to describe it is that licensing involves paying to use someone else’s intellectual property but not to represent yourself as them, and franchising takes this further by allowing you to also act as a representative outlet of the business you are licensing the IP from.

How does business licensing work?

Generally with licensing you first identify a business that has ideas or brands that you want to use yourself. Perhaps the business is a clothing brand, and you want to create your own licensed copies of their clothing line and sell them online under their brand.

Or perhaps they are a media company that owns the rights to fictional characters and designs that you want to use on clothing, posters, digital media, and other items in order to sell them online. By licensing the rights to reproduce those designs you can benefit from their prior work in creating and building up value for those designs. You can then sell those designs while paying a licensing fee to use them and make money on the difference as a result of the popularity of those designs.

Cross-media licensing is a good example of a symbiotic relationship between licensor and licensee. Perhaps you own a video game company and another company owns a movie franchise. By licensing the right to use the ideas and designs from the movie franchise you can create a video game series based on the characters and world-building involved with the movies. This also allows you to profit from the popularity of those movies and it allows the movie IP owners to profit from extending their IP into the video game market.

How does business franchising work?

Franchising basically builds on top of business licensing. In addition to licensing the rights to IP, however, you are also licensing the rights to represent yourself as an outlet of the company you are licensing the IP from.

While licensing the IP allows you to benefit from the popularity of the IP it normally doesn’t let you profit from the reputation of the company who owns that IP. Franchising allows this, and you usually end up with far more value as a result. To protect themselves though, the IP owner will usually force more control over a franchisee to ensure their reputation is not tarnished by bad behavior.

So the downside of licensing a business franchise is that you are far more restricted in what you can do creatively. The IP owner basically wants you to represent yourself as one of their outlets and will impose heavy contractual restrictions on how far you can deviate from their way of doing things. To compensate for this they will usually provide a great deal of training along with other needed resources to help you represent them faithfully. This can give you a solid head start in the industry that the franchise is in.

The main point of both of these types of business licensing is that you get to bypass a lot of work in building up a brand. The downside is that for any extra work you do in promoting that brand, it won’t be your brand that you will be building value for. You need to think carefully about which business model you want to adopt for your online money-making efforts. But however you proceed, by working with an established company you can gain a huge amount of experience and build many useful business contacts. So, in the end, you will benefit greatly from either business relationship.