How much does it cost to invest in a brand licensing operation? This is one of the most frequent questions we get asked when talking about licensing. It is a legitimate curiosity and it is a question that has several answers.
Let’s start saying that generally the remuneration of a licensing agreement is made of two different parts, the minimum guarantee and a variable part linked to the volume of sales of the licensed product, also known as “royalties”.
Why such a contract structure?
Because this structure allows both parties, the licensing partners, to get great benefits from a successful operation. In fact, they will be developing, by signing the license agreement, a real partnership with the objective of producing a win-win operation.
Which are the benefits of such a structure?
I will underline a few of them and I’ll do it as they come to my mind. First of all the party that grants the right to use its brand (the licensor) gets a minimum guarantee, a fixed amount, and because of this, it can rest assured that the license will be deployed. This licensing fee, or license fee or minimum guaranteed, is a sort of insurance policy that covers the risk that the licensee doesn’t go ahead with the project but just acquires the rights, the legal permission, for the mere purpose to take out of the market the opportunity that a competitor could go for it.
The licensee shows its real commitment by paying a certain amount of money so it is certain that the license will go ahead at full speed.
Since part of the remuneration, the royalty payments, is linked to the volume of sales, the licensee can have access to great projects without investing most of its resources. Therefore there will be more than enough budget left to be invested in product development, influencer marketing, and commercial activities to push the branded products.
On the other hand, the licensee, who is obviously risking his capital, can rest assured that the licensor will be very willing to help.
Since a big part of its turnover is linked to sales he (the licensor) will be very helpful in the management of the daily activities and will make any possible effort to help with the approvals, the promotional actions and so on. So the licensor will do everything he can to help the licensee in developing a successful licensing program.
Now, the sore question: How much does it cost?
The real answer is, there is no price list. If you want to buy the big names of the market and you are in a very popular and busy category, eg fashion, you can expect deals starting at 6 figures. On the other hand, if you are in a niche, maybe a very rich but not very crowded one, it is likely that you can end up with a good deal because the licensor will consider that there are fewer chances to exploit commercially such a sector and it will be more for him to go for an alternative.
Are licensing programs popular? Who is doing it?
Licensing is extremely popular and in 2017, according to LIMA, the Global Revenue from Licensed Goods and Services generated US$271.6 Billion.
So, there are thousands of companies involved in licensing, partnering with brands such as Walt Disney, Ferrari, Bentley, Ducati, Procter&Gamble, Pepsi Cola and many others. Most companies are keen on exploring new markets through licensing deals. If the industry is in such good health, It is crystal clear that there must be something good in it, maybe something you have never considered but that it is worth investigating.
It is always advisable to be the driver of the process.
One last hint: It is always advisable to be the driver of the process, taking control of the agreement between the two parties. This often requires consultation with licensing agents to ensure that all rights granted are well understood and protected.
If you have an interest in licensing and in motorsport, we can run for you all the necessary preliminary check and verify the investment required for your specific category. Let’s talk about it, or have a look at our Licensing page. We can be always reached at info@rtrsports.com
In conclusion, brand licensing has immense potential to offer monetary gain and brand expansion, considering the licensing fee paid and money involved. Even though the cost of licensing agreements and royalty rates can be significant. Moreover, businesses engaging in these contracts are not just a licensee or one party in the agreement, but they become an integral part of a broader ecosystem that spans several companies, each playing a significant role in the brand’s story.
However, these licensing programs can be complex, particularly in understanding the nuances of licensing agreements and the usage-based payments model.
In the end, the ultimate goal for all parties involved is to develop a successful operation where everyone benefits. The licensee, who initially pays the license fee, ultimately benefits from the sale of licensed products and the licensor, who grants the permission, benefits from a regular influx of royalties, potentially generating a significant portion of their overall business revenue.
Thus, licensing is not just an exchange of rights and money but a strategic decision that can significantly impact the trajectory of both parties involved, potentially leading to the opening of new markets and the creation of lucrative business opportunities.
