A sound licensing agreement is a boon for brand owners but, to work, a contractual arrangement has to be a win for both parties. A well conceived licensing contract has these benefits for manufacturers and service providers, also referred to as licensees.

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1. Recognition. A T-shirt manufacturer with specialty printing capabilities can be selling generic T-shirts today and become an official Disney licensee of Mickey Mouse and Winnie the Pooh tomorrow. Instantaneous recognition is an immediate benefit for the licensee.

2. Enhanced authenticity and credibility. A video game manufacturer who develops an amazing soccer game has a nice product. If they can license the FIFA trademarks, they gain immediate legitimacy and authenticity for their game. Similarly, a maker of automotive parts or accessories will license specific car brands to establish in the consumer's mind that its products work seamlessly with the cars of the parent brand.

3. Reduced in-house costs. A manufacturer who acquires a major license often gains the licensor's preferred pricing on raw materials, shipping, creative, etc. In addition, they gain access to the licensor's style guide, which provides them with most of the imagery and artwork they need to design their products.

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4. New distribution channels. A manufacturer selling under a private label brand in mass merchandise outlets can license a more upscale line and gain entry to specialty and department stores uninterested in lower-end products.

5. Enter new regions. A door mat manufacturer in Germany selling its products in Europe can enter the US market by licensing a major household brand like Better Homes & Gardens.

6. Strategic knowledge. Licensees gain access to the licensor's expertise in marketing, supply chain management, customs or other subjects where they may be less proficient. Manufacturers can benefit from the licensor's databases and libraries for market research, manufacturing and product design. As true partners, licensor and licensee can identify and tap into each other's strengths.

For some licensees, acquiring one license opens the doors to more licenses. For others, gaining access to an important name brand can add immediate monetary value to their organization. Acquiring a license is an important consideration when owners are considering selling their company.

Acquiring a license from a world-class brand, if managed properly, can have a dramatically positive impact on a company that already possesses an outstanding product or service. The brand gives the manufacturer the credibility and recognition it needs to showcase its innovation and quality. One license can catapult an obscure company into a world of new customers and increased revenue.

Related: Licensing Your Invention vs. Going Into Business