As a licensor, you want to go through a licensing process that will give you great results in the future. That, however, is often not the case. Licensors make mistakes which affect their royalties and other income. This is because they don’t look for a guide to show them how they can best license their inventions. Because we want you to avoid the same mistakes that so many make we have compiled a list of 10 things that you should look out for during a licensing deal.
- Taking on more than you can handle
You have your brand new idea, you have the intellectual property rights for it and now you want to issue licenses as opposed to starting your own business. It is all so exciting that it’s easy to see why many licensors get carried away and make sales projections that are just not realistic. The licensee will be unwilling to correct you because they are also eager to start selling on your behalf. In the end, both of you will be disappointed. Start out with realistic numbers that can be achieved.
- Letting the licensee spread himself too thin
If you look at it from the licensee’s perspective, it makes sense to get a contract that allows him to sell in multiple regions or through multiple channels. In reality this doesn’t usually work out. What the licensee needs is the opportunity to see your merchandize to a major retailer – that is the only way both you and he will make money. If that retailer were to back out the deal would be dead. Rather than focusing on many regions or channels in the beginning your interest should be in getting a licensee who has the right connections.
- Getting over-excited about the brand
Yes, it’s a new idea and it’s a great one and both you and the licensee think that you will make a lot of money. There is a chance that you will, but there is also a chance that you won’t. Be realistic in terms of how easily your branded product will be received in the market – it takes time for products to become household brands.
- Getting a licensor who doesn’t respect the brand
This is a common disagreement in licensing deals. Ideally, the licensee should be able to create a new product with the guidelines issues by the licensor. They should be careful to bring out top quality products. Instead, many licensees, in order to cut costs, take the easy way out and simply slap a logo onto a substandard product.
- Not getting the necessary approvals on time
The licensing process is a long one and it can take quite some time to get all the necessary approvals between licensor and the licensee. What often happens is that licensee has to miss the initial shipment because they cannot proceed without the necessary paperwork.
- Not including all the relevant parties
Most licensing agreements are negotiated by top tier management who often have no idea what happens on the factory floor or in use of the licensed product or service. As a result, they end up signing a deal that is impossible to execute on the given terms. It is important to include the managers that do the day to day running of the process, so that you can take all factors and prospectives into account.
- Underestimating the investment needed
In many cases, licensing deals fall through because licensees do not anticipate just how much it would take for them to get the product into the market and get people to actually buy. This usually means lost opportunities. As a licensor you should only work with a licensee who has pockets deep enough to invest in making your product successful.
- Selling in channels that are not authorized
When licensees are below contractual sales limits they can decide to sell in unauthorized channels in order to meet their goals. If they are caught the risk is to you, the licensor. Make sure that they understand that they cannot do this from the get go.
- Don’t get complacent
It is tempting to think that the other party has your best interests at heart but you shouldn’t. Business is business and it is up to you to look out for yourself the best way you know how.
- Not sticking to the contract
You may have agreed to something during negotiations but if it isn’t in the contract it means nothing.