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The Difference Between a Franchise and an Affiliate

If you want to start selling products, you might be wondering whether opening a franchise or becoming an affiliate could be a good move. Both franchisees and affiliates market products developed by other people, but they do so in very different ways. Let us explain the difference between a franchise and an affiliate. 

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What is a Franchise? 

A franchise is a licensing arrangement between a brand and an individual. If you want to become a franchisee, you must contact the parent company and apply. If your application and your funding both go through, you’ll receive a set of instructions about the set-up of your franchise – things like decor, branding and menu items (if applicable).

You’re legally obligated to abide by the terms of your licensing agreement with the franchisor and you have limited autonomy. You can’t open a branch of a national chain and then decide you want to serve different items, use a different logo or require different uniforms. If you’re looking for a ready-made business, becoming a franchisee might be just what you want. But if you’d like to exercise more creative control, you might be better off opening a small independent business.

What is an Affiliate? 

An affiliate is someone who sells particular products in exchange for a commission. A classic example of an affiliate program is Mary Kay’s marketing scheme, where salespeople would market Mary Kay products door to door, earning a commission in the process.

These days, most people who act as affiliates do so online. You can do this by including affiliate links on your blog or website, or on Instagram, Facebook or Twitter. When someone clicks on those links and makes a purchase, you get paid. For example, Amazon has an affiliate program that lets participants include Amazon affiliate links and monetize when users click those links.

Related Article: How to Make Money on Amazon

Franchise vs. Affiliate

The Difference Between a Franchise and an Affiliate

If you want to start a small business and you have an idea of your own, you don’t need to choose either a franchise or an affiliate scheme. But if you like the idea of working with an established brand that will provide you with some structure for your business enterprise, the franchise or affiliate route could be a good fit.

Opening a brick-and-mortar franchise is a much more difficult, complicated and expensive proposition than joining an affiliate program. To start a franchise you’ll have to employ the services of a lawyer to walk you through the licensing process. You’ll also need to secure financing for opening the franchise. In other words, the up-front costs – in terms of money and time and effort – are higher with a franchise. However, it has the potential to be more lucrative than an affiliate program.

Becoming an affiliate for a vendor is more suited to being a side hustle. You don’t have to quit your day job to become an affiliate like you might if you decided to become a franchisee, and you won’t have anything like the same start-up costs. But it’s tough to make a living solely from being an affiliate.

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Bottom Line

The Difference Between a Franchise and an Affiliate

Whether you decide to become a franchisee or an affiliate you’ll receive instruction from the brand, company or vendor you’re working with. It’s important to follow those instructions carefully because violation of the terms of your agreement could bring costly legal consequences. Before you go down either path it’s a good idea to do plenty of research and, if you can, talk to people who are succeeding as franchisees or affiliate program participants. That way, you can learn what worked well and what didn’t and incorporate that knowledge when you launch your own business.

Update: In need of further financial advice before you become a franchisee or an affiliate? SmartAsset can help. So many people reached out to us looking for tax and long-term financial planning help, we started our own matching service to help you find a financial advisor. The SmartAdvisor matching tool can help you find a person to work with to meet your needs. First you’ll answer a series of questions about your situation and goals. Then the program will narrow down your options from thousands of advisors to up to three fiduciaries who suit your needs. You can then read their profiles to learn more about them, interview them on the phone or in person and choose who to work with in the future. This allows you to find a good fit while the program does much of the hard work for you.

Photo credit: ©iStock.com/julief514, ©iStock.com/James Brey, ©iStock.com/mediaphotos

Amelia Josephson Amelia Josephson is a writer passionate about covering financial literacy topics. Her areas of expertise include retirement and home buying. Amelia's work has appeared across the web, including on AOL, CBS News and The Simple Dollar. She holds degrees from Columbia and Oxford. Originally from Alaska, Amelia now calls Brooklyn home.
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