Licensing 101: Brand Licensing and What Every Retailer Should Know

Licensing 101: Brand Licensing and What Every Retailer Should Know

Disney, brand licensing | Shopify Retail blogWhen your niece’s birthday is coming up, you don’t have to go far to find a gift with Minnie Mouse screen printed on it.

Why is that? Why are some brands so ubiquitous and easy to find?

The answer is brand licensing. Disney doesn’t manufacture every T-shirt or coffee mug with one of their characters on it — thousands of other businesses contract with Disney for the right to use their characters and other trademarks. And those businesses handle the nitty gritty details, like producing and manufacturing those products.

OPEN Forum describes brand licenses as “legally protected agreement[s] through which a third party leases the use of the company’s brand, name, or likeness from another entity.” In its simplest form, it’s a contract that allows one company to use another’s trademarked creation.

Once you get past the basics, a brand licensing agreement accounts for every detail involved in how two companies will work together. For example, the licensee (the company buying rights to license a brand) often pays a portion of each sale of the licensed product back to the licensor (the brand being licensed.)

Benefits of Licensing Your Brand

As a retailer, you have the option to be on both sides of brand licensing. Depending on the specific goals you’re hoping to achieve, it might make sense to either license your brand or to lease the rights to another, usually larger brand (or both!)

When done right, brand licensing can be a huge boon for both companies. From tapping into new audiences to earning incremental value, there are countless benefits for both licensee and licensor. That’s why it’s such a common arrangement in today’s marketplace. And that’s why it’s an option retailers should be familiar with.

As a reminder, licensing your brand means you give another company permission to use your brand’s logo, name, or other intellectual property (IP) on their products. And you don’t have to be a behemoth brand to make it happen. If your brand has value, even locally or within a targeted niche, you can license that brand.

There are a myriad of ways an arrangement like this can boost your business. Let’s talk about a few of them.

Grow Your Brand and Reach a Wider Audience

Brand licensing | Shopify Retail blogLicensing your brand essentially means forging a partnership with another business — one of the main benefits of marketing partnerships is being able to reach a wider audience. Working with another brand gives you instant access to their customers and audience. Deliberate brand licensing creates an immediate opportunity for your brand to grow and expand strategically into a new age demographic, geographic location...you name it.

Build Stronger Relationships With Customers

As your brand grows, your customers’ desires and expectations grow with it. As a small retailer, it can be hard to grow your business and product lineup in a meaningful way that keeps pace with those customer expectations. Licensing your brand is one way to build a bridge between your manufacturing and product design capabilities and the products your customers are looking for.

Generate Incremental Revenue and Diversify Your Revenue

With a brand licensing agreement, and as the licensor, you’ll typically receive royalties for every licensed product sold. Royalties aren’t typically going to take your business from $1,000 in revenue to $1 million, but they can be a good way to add incremental value and diversify the ways your brand can make money.

Depending on the licensed product, that incremental revenue can even help to smooth out seasonal swings in your retail store.

Protect Your Brand Against Unauthorized Products

If you’ve ever been to a public market, you’ve probably seen unlicensed and counterfeit products being sold illegally — think of those $20 “Coach” handbags or $10 “Ray-Ban” sunglasses.

When a brand gets big enough, counterfeiters are never far behind. Licensing your brand can help you stay ahead of this curve and help you to be proactive about protecting your intellectual property. A licensing agreement also enables you to take steps toward protecting your brand’s prestige with explicit terms around discounting and similar issues.

How to License Your Brand

Brand licensing | Shopify Retail blog

If you’ve decided brand licensing is a good fit for your retail business, you might be wondering how in the world to get started. An effective brand licensing strategy ensures that your brand’s assets are safe and protected, and that any licenses you hand out will ultimately benefit your brand. Here’s how to get started.

Step 1: Protect Your Intellectual Property

Protecting your intellectual property is one of the most important factors behind licensing your brand. The last thing you want is to accidentally give someone full, unfettered access to use your brand assets without getting anything in return.

If that sounds crazy, consider Dale Earnhardt Jr. who, for years, didn’t own the license to his own name. Or the creators of Superman, who sold 100% of the rights to the character for a measly $130. Or The Beatles, who sold off 90% of the rights to their likenesses. Think about all the products you’ve seen with those iconic bowl cuts, and then imagine The Beatles themselves only seeing 10% of the royalties.

The best way to protect your brand is to work directly with a lawyer who specializes in intellectual property — and to get started early. Ensure your brand’s assets are trademarked and protected from the very outset. Then you can think about licensing them down the line.

To find an intellectual property lawyer in your area, try searching Avvo’s database.

Step 2: Do Your Research

Licensing your brand isn’t a one-and-done process. If you’re looking to aggressively pursue brand licensing as a growth engine for your brand, it’s best to create an overarching strategy that outlines what you’re looking for in a potential licensee. That way, you can make a quick decision about which companies to approach and approve.

So, how do you go about drafting a brand licensing strategy? It all starts with extensive research. Like any partnership, you’ll evaluate potential licensees to ensure they’re a good fit for licensing your brand. There are a ton of factors that go into brand fit, but let’s boil it down to a few questions you should consider:

  • Are your customers interested in this product? If customers frequently ask if you offer a product (and you don’t), that’s a good opportunity to offer someone else a license to produce that product under your brand name.
  • Does your brand’s equity translate to this product? Sports teams license their logos and names to apparel companies because fans snap up Red Sox hats like there’s no tomorrow. That’s fits. It doesn’t make quite as much sense for Tampax to license their brand to a company that makes breakfast cereal.
  • Does the licensee have the operational capacity to add value? You gain the most from brand licensing agreements when the licensed products sell (a lot.) That’s why it’s important that the licensee has the operational capacity to make it work. Can they produce enough of the licensed product to make the agreement lucrative?

You know your brand and audience best, but a qualified licensing agent can help you answer these questions and will become indispensable when it comes to the next step.

Step 3: Set Terms and Restrictions

Once you’ve found a potential licensee who’s a good fit for your brand and customers, it’s time to draft the licensing agreement. As you just read, you should work with a licensing agent or attorney to help ensure your contract includes all the necessary terms and that the agreement is legally binding.

As your agent draws up the license, there are several terms and restrictions you’ll decide on. These lay out the specifics of the partnership and set expectations for both you and the licensee.

Royalties

How will your portion of the revenue from licensed products sold work? Your brand license will go into extensive detail on the structure of your financial compensation. The licensee may pay an initial flat fee to license your brand, and ongoing royalties (usually a set percentage of unit price or specific dollar amount) for each licensed product sold.

Products and Quality Assurance

When you give another company permission to use your name, logo, or likeness on their products, you’re taking a calculated risk. Your brand is automatically associated with — and to some extent, held accountable for — the quality and content of those products. That’s why it’s vital to include quality assurance terms in your licensing agreement. The license will also lay out the specific products the agreement is limited to.

Exclusivity

The vast majority of brand licensing agreements are non-exclusive. That means you can license your brand to as many competing apparel manufacturers as you choose. Even though non-exclusivity is the norm in brand licensing, it still needs to be outlined in the contract. In some cases, you may choose to offer an exclusive license — in which case, you can often command higher royalties.

Moving Forward With Licensing

No matter how big or small your retailer is, brand licensing is always a possibility down the line. That’s why it’s beneficial to understand the basics of what it means and how you can obtain a brand license. Whether you become licensee or licensor is up to you, your brand, and your goals.

Photo of Kiera Abbamonte

About the Author

Kiera's a freelance writer and consultant for software and ecommerce companies. She writes for the likes of Wave, Kissmetrics, and Kayako, among others. Newly located in Boston, MA, Kiera loves cinnamon coffee and a good baseball game.

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