The Pros and Cons of Licensing: How to Get Licensed Products on Store Shelves
As an entrepreneur, you’re filled with revenue-generating ideas, and you know there are various potential avenues you can take to create these new products and business ventures. Oftentimes, the best way to bring your new product to life is through licensing. What is a licensed product, you ask? According to the Dictionary of Marketing Terms, licensing is the “contractual agreement between two business entities in which the licensor permits the licensee to use a brand name, patent, or other proprietary right, in exchange for a fee or royalty. Licensing enables the licensor to profit from the skills, expansion capital, or other capacity of the licensee. Licensing is often used by manufacturers to enter foreign markets in which they have no expertise.”
We’re going to lay out the pros and cons of licensing so you can make an informed decision when it comes to the life and trajectory of your product idea, and learn how to get licensed products on store shelves.
- High ROI: Product licensing offers a profitable ROI (return-on-investment) regarding time and money, two of your most valuable resources. As an entrepreneur with a new product, you don’t have to start from the beginning; you can save time and utilize the brand awareness, brand recognition, brand loyalty and customer base of the logo, character, image, etc. you’re licensing.
- Lowered Risk: Any business venture requires risk. Licensing is unique in that the risk is mitigated by the relationship with a well-established brand, and it requires a lower investment than other agreements. In the end, there is a high potential for reward, revenue, and less risk for both the licensee and licensor. Licensing provides a way to move an existing brand into new businesses without making a major investment in new manufacturing processes, machinery or facilities.
- Marketing Power: Licensing provides a way for the entrepreneur to take advantage of all the brand building that has already happened. You’re obtaining a pre-packaged marketing tool for your product, meaning you can leverage the brand identity that is associated with said brand.
- You can leverage an existing company’s success: Furthermore, you will benefit from working with a company that knows the industry and your product’s potential competitors. It’s far easier for an existing company with a large distribution network and existing relationships with retailers to get your new product on the shelves than it would be had you gone at it alone.
- Give and Take: When you license your product to a manufacturer with the resources to get it into the consumer’s hands, they agree to take over the manufacturing and distribution of the product. This delegation of duties saves you time and energy which you can devote to other projects. You’re an entrepreneur, after all, so it’s nice to be able to have your hand in many pots.
- High Initial Cost: In order to sell your product, meet sales goals and pay royalties, you need a quality product that consumers want, not to mention a license-worthy product brands are willing to put their name or logo on. One con of licensing is that it can have a high initial cost, considering the product you initially create needs to be worthy of a license and a company’s investment in it. This means you need to invest in the initial product in order to convince someone to become your licensor.
- Loss of Control: Product licensing isn’t for control freaks. Often during the creative process, the inventor loses control of the original idea as it evolves. The licensor, the one manufacturing and distributing the product, ultimately has the final say. Work with a company that understands your vision and has a successful track record to ensure your idea comes to fruition.
- Hard Road Ahead: It can be difficult to find the right licensor for your product, but then again, success never comes easy. Securing a license requires research and perseverance.
Now that you know what you’re in for when licensing a product, you know how to get licensed products on store shelves. If that light bulb over your head is burning bright with new product ideas, start compiling a list of potential licensors and learn how to license your product.