Ask Felicia Joy: How Do You Make Money From A Licensing Deal?

June 21, 2011  |  

Dear Felicia,

What exactly is a licensing deal?  How do you make money off that?

Chriss H.

via Twitter

Dear Chriss,

There are many ways to leverage a brand in business and licensing is one of them.  Essentially a license gives a company the right to use your name, likeness, brand or intellectual property while you maintain ownership of it.

Licensing deals can be structured in many ways.  You could be paid a flat monthly or annual fee for use of the license; a percentage of revenues generated as a result of the license — or a combination of the two.  That is all negotiated by you, the licensee and your attorneys.

Brands and companies license for many reasons.  One of the most popular reasons is the one that Kevin O’Leary and the Sharks are thinking of on ABC’s Shark Tank when they sometimes urge entrepreneurs to sell them a percentage of the company and work out a license for their brand or product: Speed to market.  This results in less risk, faster profits and fewer headaches.

Let’s use Martha Stewart as an example.

When you see Martha Stewart products and services she has licensed her name, image and brand.  What products and services does Martha offer?  We might be better off counting what she does not offer.  She sells everything from soap to flowers to paint to houses!  But her company doesn’t manufacture any of it.  For one company to get that many different products to market for sale it would take massive amounts of capital and expertise.  That would mean too much time developing designs and finding manufacturing plants; too much money to cover development and production costs; and too much of a learning curve making sure everything is produced and packaged with quality.  So, instead of Martha becoming an expert in all those product categories — or hiring experts for each, which would make for a porky payroll — she decides which products to sell and then licenses the ‘Martha Stewart’ brand to companies and manufacturers that are already in those businesses.

The companies she licenses to have expertise in the product and have already invested in the processes that get a quality product to market quickly.  And they license from her because she has already invested in herself and her company to create a brand that people like so they’ll choose a product with her name on it over another product or service.  They excel and product development and manufacturing, she excels at branding, promoting and connecting with an audience.  It’s a win-win.

When you see merchandise with Disney characters or popular entertainers (like Miley Cyrus aka Hannah Montana) these are licensing deals.  Needless to say, licensing generates big money.  The Licensing International Expo is where people often find out about new licensing opportunities.  It just took place in Las Vegas.  If you’re really interested in licensing maybe it’s a great trip for you to make next year!

Felicia Joy is a nationally recognized entrepreneur who created $50 million in value for the various organizations and companies she served in corporate America before launching her business enterprise.  She is often called on to discuss the ins and outs of entrepreneurial success and has appeared on CNN, FOX and in other national press.  Felicia operates Ms. CEO Inc., a training and development company that helps women entrepreneurs achieve more success, faster — as well as Joy Group International, LLC, a business development and consulting firm. Send her your questions at ask@feliciajoy.biz or www.twitter.com/feliciajoy.

Note: All advice offered in this column is for general information only.  Felicia Joy and The Atlanta Post are indemnified against any and all related claims.  Always seek the advice of licensed professionals before making business decisions.

 

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