How Much in Royalties Could You Generate Through Licensing?
What are the riches within your brand waiting to be exploited? And what are you waiting for?
By Pete Canalichio •
Opinions expressed by Entrepreneur contributors are their own.
Like many, you may have been considering launching a brand licensing program for several months, or even years. However, you have been hesitant to pull the trigger, as you just don't know how much in royalties your brand could generate and whether you would gain a sufficient return on investment (ROI) from it.
Related: Should You License Your Product?
However, you know you would have a good perspective if you could answer the following questions:
- What kind of royalty revenue can my brand generate?
- How much will it cost for us to get started?
- How long will it take to reach critical mass?
- What will the ROI be?
To get at the answers, you need first to evaluate what new categories your brand has permission to extend, or expand, into Once you know these categories, prioritize them. Then estimate the range of sales your brand would generate through licensing those categories. Finally, pick a low and high royalty rate to calculate the range of royalty revenue you could expect to generate.
Once you know the royalty range, evaluate what the cost would be to launch the program internally or by utilizing a brand licensing agency. Knowing the cost, you can determine what your ROI will be. If you can leverage your brand's strength in the marketplace at a level sufficient to generate royalty revenue for your company, while extending the brand into new categories where your consumers and customers expect it to be, licensing will be a powerful tactic.
Here are the first eight steps to get you started:
- Identify the top five-to-eight categories in which to extend your brand.
- Prioritize those categories by potential consumer engagements, royalty revenue and customer interest.
- Identify two-to-three prospective licensees (manufacturers) for each category.
- Define, for each licensee, an expected set of licensing-deal terms, including royalty rate, minimum sales, minimum guaranteed royalties, territory, channels and term.
- Estimate, for each category, the total sales and projected royalty revenue.
- Make a recommendation, based on your findings, as to the viability of brand licensing as a go-to-market strategy.
- Articulate the investment needed and the actions required to launch a brand licensing program.
- Summarize the findings and recommendations in a summary PowerPoint presentation that you can share with senior management
Related: Have a Lot of Clever Ideas? License Them to the Novelty Gift Industry.
Before you can accomplish these steps, you will need to know the answers to the following questions:
- What is the strength and equity of my brand?
- What new categories can the brand enter that will leverage its strength and equities?
- What is the market size for each new category and expected growth over the next 5 years?
- What company is the category leader, and what is its market share?
The royalties paid to brand owners in 2014 alone have been estimated to have been around $10 billion. This equates to more than $200 billion in brand-licensed commerce on a worldwide basis each year.
Related: Why Licensing is the Best Way to Get Your Product on Store Shelves
With the pervasiveness of brands to extend and expand through licensing, now is the time to determine if brand licensing can help meet your own company's growth targets. Are you ready to find out?
