What is the difference between a licensee, distributorship, and a franchisee?
Posted February 16, 2010on:
Distributorship – this is when a manufacturer of a supplier of some sort of product requires a 3rd party to market, sell, and deliver that product in a designated area. A perfect example is that of a beverage manufacturer. The manufacturer in question may not have the means to distribute their product far from their home offices. So instead of hiring employees in selected cities, they sell the rights to distribute the beverage in specific territories. The benefit to the manufacturer is that they do not have to hire an employee and keep tabs on that employee from a far. They also have a representative that is financially vested, so the chances of losing that representative are far less than if they had an employee in the area. The downfall to the manufacturer is that they potentially give up some revenue. But that’s where the benefit to you, the distributor, comes in because that revenue goes right into your pocket.
Licensee – an individual or company that acquires the rights to a legally protected property owned by another individual or company (the Licensor). The licensee is then free to utilize that property. The benefits to the licensor and licensee are much same as in a distributorship in that the licensor gives up potential revenue, revenue the licensee ultimately earns, in exchange for a vested partner.
Franchisee – a franchisee is one who purchases a franchise from a franchisor. In a franchise system, the franchisee must operate under specific guidelines set forth by the franchisor. Those guidelines include everything from how to operate the business and how to use the company brand name. Franchisors have much more control over the processes and guidelines that the franchisee function within. Whereas a licensee or distributor typically pays set fees, a franchisee typically pays a royalty in the form of a percentage of their gross revenue.