Licensing 101
IMC Licensing
November 8, 2009
As an agency that develops and manages licensing programs for our clients’ trademarks and brands, we often get asked Why Licensing? So here is our attempt to list the most important reasons to pursue brand licensing and why it can add to your bottom line.
Benefits of Licensing
- A valuable national brand can enhance consumer awareness for a product that may be lost in a field of competitors.
- An established brand can communicate precisely the level of quality expected from and the equities associated with the product and its consumers.
- A well-known brand with solid recognition brings loyalty from an existing consumer base.
- A well-matched partnership between a brand and product can increase sales exponentially.
Licensing a well-known brand name can take high quality products to new levels of success. It brings manufacturers:
- Increased market share
- Higher profit margins
- Increased attention from buyers and consumers
Some Key Terms to Know
Royalties A royalty is to be paid to the licensor on products developed, marketed and sold by the licensee. The expected rate depends on the product category, but is generally in the 5-8% range of wholesale sales.
Guaranteed Royalties An annual minimum royalty payment is to be guaranteed by the licensee for the duration of the agreement. The guaranteed royalties are based on the licensee’s forecasts for expected sales of the licensed product. These minimum guarantees are paid on a quarterly basis.
Minimum Net Sales The licensor has minimum sales performance requirements for its licensees. The minimum net sales are based on the licensee’s forecasts for expected sales of the licensed product.
Term of Agreements Typically, license agreements are for a term of two years with a one year renewal option and are non-exclusive.
Royalty Reporting Accurate and detailed information on sales results and associated royalties are due on a quarterly basis.
Insurance Licensees must always carry liability insurance for their products and name the licensor as an additional insured.
