You have an idea for a new product, how do you license it?
You have an idea for a new product, you’ve decided product licensing is the best avenue to get it into the world and now you’re wondering what your next steps should be. Many entrepreneurs and inventors have been where you are right now; they too have pondered, “How do I license my new product?”
Luckily, you’re on the right track. Product licensing is a great way to bring your idea to life. This business agreement has a high ROI and relatively low risk. We’re here to explain how to license your new product so that you can become the mogul you’ve always dreamed of becoming.
In order to secure a license agreement, you’ll have to secure a contract with the owner or agent of the property, also known as the licensor and the renter of the rights. Here is how you, the prospective licensee, can go about licensing a product in order to increase profits and margins and sell more of your product:
Research: The first step to licensing your product is doing your homework; when you eventually present to a company and discuss licensing opportunities, you want to appear knowledgeable, competent and prepared. In order to do this, you should research your product’s target market, various potential licensing candidates, as well as the competitive business landscape.
Make a list of potential candidates that you could see yourself working with. Be sure to vet each company on your list thoroughly. Before you choose a company to license your product, you should analyze and compare and contrast their current distribution channels, their product assortment and their potential for growth. It’s important to choose the licensing company that’s right for your product.
Prepare: Prepare a thorough business plan and a comprehensive marketing plan that demonstrate the product’s ability to sell at retail. This attention to detail and forward-thinking will make the potential licensor more comfortable with you, the applicant, and more willing to approve your proposal. Furthermore, you’re demonstrating dedication and incentive, as well as knowledge of the customer base and the competition. Include facts and numbers. Show this prospective licensor that you, the licensee, have the determination, research and financial capability to make your product a success.
File for Patent Protection: It’s smart to protect yourself with a patent and a non-disclosure form before discussing your product with potential licensors (if it is not on the market yet).
Contact Candidates: Reach out to your desired licensor in a professional way. Contact the appropriate representative. Make sure your pitch is ready and you can describe your product and convince them why it would be a great fit for their brand.
Discuss the Licensing Agreement: Upon meeting with the licensor, you will discuss the terms and conditions of the licensing agreement. In exchange for granting the rights to use their property, you, the licensee will pay a royalty–this is a percentage of the licensee’s sales of products. Know what percentage the royalty should be for your industry. A typical royalty is 5 percent of gross wholesale sales, the price to the retailer from the manufacturer. However, this royalty can range anywhere from 3 to 10%, according to Licensing.org. Most licensing agreements also include a guarantee or minimum –a sum that the licensee must pay the licensor even if little to no product is sold. The agreement will also delineate the terms and conditions the licensor’s property is subject to, such as purpose, geographic area and time period.
Seek Legal Advice: If you’re unclear or wary regarding any aspect of the licensing agreement, seek legal advice. This can save you a lot of money and plenty of headaches down the road.
Know Your Stuff: If you have any questions on product licensing, you can visit License Magazine, the leading source of news and trends for the licensing industry. Also, on the website for the International Licensing Industry Merchandisers’ Association, the leading trade organization for the global licensing industry, you can ask questions and find links to various resources.