Licensing - Entrepreneur Small Business Encyclopedia

Licensing lets you instantly tap the existing production, distribution and marketing systems that other companies may have spent decades building. In return, ... Skiptocontent ProfileAvatar Search Menu CloseMenu StartingUp StartingaBusiness AskanExpertMentoring Webinars EntrepreneurElevatorPitch Finance SideHustleAccelerator GrowingaBusiness GrowthStrategies Marketing Sales CustomerService SocialMedia EntrepreneurInsurance Franchise FranchiseCenter TaketheFranchiseQuiz Franchise500List FranchiseHow-Tos FranchiseServiceProviders FranchisesforSale BizOppListings Inspiration SuccessStories Leadership Entrepreneurs Branding TimeManagement FollowUs Facebook Twitter LinkedIn Youtube Instagram RSS BrowseBy Video Podcast LatestNews PopularArticles Books Webinars Spotlight Editions UnitedStates Spanish MiddleEast India AsiaPacific Georgia Europe SouthAfrica SubscribetoEntrepreneur Newsletters Subscribe Signingoutofaccount,Standby... Home Home SmallBusinessEncyclopedia Inventing Licensing Licensing ByEntrepreneurStaff LicensingDefinition: Abusinessarrangementinwhichonecompanygivesanothercompanypermissiontomanufactureitsproductforaspecifiedpayment Therearefewfasterormoreprofitablewaystogrowyour businessthanbylicensingpatents,trademarks,copyrights, designs,andotherintellectualpropertytoothers.Licensinglets youinstantlytaptheexistingproduction,distributionand marketingsystemsthatothercompaniesmayhavespentdecades building.Inreturn,yougetapercentageoftherevenuefrom productsorservicessoldunderyourlicense.Licensingfees typicallyamounttoasmallpercentageofthesalespricebutcan addupquickly.Forexample,about90percentofthe$160millionayearin salesatCalvinKleinInc.comesfromlicensingthedesigner'sname tomakersofunderwear,jeansandperfume.Theonlymerchandisethe NewYork-basedcompanymakesitself,infact,areitswomen's apparellines.Manylargecorporations,suchastheWaltDisney Co.,generatelesssignificantproportionsoftheirrevenuefrom licenses.IBM,afterenergizingitseffortstolicenseits thousandsoftechnologypatentsafewyearsago,nowattributes$1 billionayearofitscorporatesalestolicensing.Thedownsideof licensingisthatyousettleforasmallerpieceofthepie.Calvin Klein-brandedproducts,forexample,generate$5billioninsalesa year,thevastmajorityofwhichgoestolicenseesandretailers. Atthesametime,licensingrevenuetendstobehigh-margin,with almostallthefeesfromlicensingflowingstraighttothebottom line.Ontheothersideofthecoin,youcouldbetheonewiththe interestinlicensingthehigh-recognitionbrandnameofanother company.Tomany,itmightseemlikethekeytoagoldmine: PuttingaNotreDamelogo,aLionKingcharacteroraStarWars graphiconyourproductmeansguaranteedsuccess,right?Forasurething,prepareforafrustratingsearch.Butif you'rewillingtoputsometimeandeffortintomakingyourproduct work,buyingthelicensingrightstoawell-knownproductorname cansubstantiallyincreaseyourchancesforsuccess.Licensingisabillion-dollarretailmarketworldwide.Buta licenseisn'taprescriptionforinstantsuccess.Itgivesyouthe borrowedinterestofanamethatiseitheruniqueorhassome consumeracceptance,butitstilltakesgoodsellingandmarketing tosucceed.Alicenseis,inessence,atool,andwhenusedwell, it'sanextremelycost-effectivemarketingtool.Licensingoffersthreemajoradvantages.First,itmaymeanyou havesomethinguniqueyourcompetitorsdon't.Second,itmaymean gettingalittlebettermarginbecauseit'sunique.Andthird,it maymeanthat10percentoftheretailersyoucallonthatyou've neverbeenabletoselltowillfinallytakealookbecauseyou havesomethingdifferent.Andwhenthathappens,youcansellthe restofyourline.Whocanobtainalicensingagreement?Thelistrunsthegamut fromamultinationalconglomeratetoaone-personoperation.Butin general,alicensorlooksforthestrongestcompanyintermsof finances,manufacturingandmarketing.Thegoodnewsforsmall businessisthatstrengthisnotnecessarilymeasuredindollarsor longevity.Beforeyoutacklethelicensingindustry,youneedtohaveyour ownhouseinorder.Makesureyouhaveorcangetfinancing,ensure thatyourmanufacturingcapacityisuptosnuff,andestablish distributionchannels.It'salsoagoodideatotrytoestablisha saleshistoryforyourproducts.Oncethisisaccomplished,then decidewhatlicensingproductsyouwanttotarget.Onceyouknowwhoyouwanttotarget,thenextstepistalking tothecompanyoritsrepresentativeandconvincingthemofyour product'spotential.Largeorganizationswillmostlikelyhave peoplewhooverseelicensingandmarketingorwillhaveturned thosefunctionsovertoalicensingagent.Youcandeterminethe properpersontospeakwithbycontactingthecompanydirectlyto askaboutlicensingopportunities.Decidingwhichlicensortoapproachmeansevaluatingyour strengths.Thebiggerandmorepopularthepropertyis,themore it'sgoingtocosttosecurethelicensingrights.Beginnersshould probablystartoutsmalltolearntheropes.Onceyoubeginapproachingcompanies,manywillaskyoutofill outalicensingapplication,andallwillaskforabusinessplan detailinghowyouproposetomarkettheproduct,whoyourtarget audienceisandwhatyouestimatesalescouldbe.Mostlicensors willalsorequestproductsamples.Whathappensafterthelicensorsaysyes?Most,ifnotall, companieswillaskforaminimumguaranteeofsalescoveringthe lifeofthecontractpaidinadvanceorininstallments,andwill chargeroyaltiesaswell.Royaltiesareapercentageofsalespaid bythelicenseetotheownerofapropertyoradesignatedagent, usuallybasedonthenetwholesalesellingprice.Somelicensors arewillingtonegotiatethesefees;othersarenot. MoreFromInventing Copyright Exclusivelegalrightsthatprotectworksofauthorship,compositionorartistry.Acopyrightprotectsthepublication,productionorsaleoftherightstoaliterary,dramatic,musicalorartisticworkorcomputerprogramortotheuseofacommercialprintorlabel. Seefulldefinition IntellectualProperty Theownershipofideas.Unliketangibleassetstoyourbusinesssuchascomputersoryouroffice,intellectualpropertyisacollectionofideasandconcepts. Seefulldefinition Invention Anobject,processortechniquethatdisplaysanelementofnovelty.Incertaincircumstances,legalprotectionmaybegrantedtoaninventionbywayofapatent. Seefulldefinition Patents Aformofprotectionthatprovidesapersonorlegalentitywithexclusiverightsformaking,usingorsellingaconceptorinventionandexcludesothersfromdoingthesameforthedurationofthepatent Seefulldefinition LatestArticles Getarealjob KenBurns:'MarkZuckerbergShouldBeinJail' DanBova Apr4,2022 Sidebusinesses 44ProfitableIdeastoMakeExtraMoneyontheSide R.L.Adams Mar23,2022 Newsandtrends ElonMuskIsNowtheMajorityShareholderofTwitter EmilyRella Apr4,2022