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How Much Royalty Could You Generate Through Licensing?

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 royalties your brand could generate and whether you would gain a sufficient Return on Investment (ROI) from those royalties to make such a program worthwhile to your organization. Answering the following questions would offer you tremendous insight into whether or not to move forward:

  • 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 these answers, you need first to evaluate what new categories your brand has permission to extend, or expand, into. Once you know these categories, you need to 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 then determine what your ROI will be. If done correctly, licensing (leveraging your brand’s strength in the marketplace to generate royalty revenue for your company while extending the brand into new categories where your consumers and customers expect it to be) can be a powerful tactic.

Here are 8 Steps to get you started:

  1. Identify the top 5 – 8 categories in which to extend your brand
  2. Prioritize those categories by potential consumer engagements, royalty revenue and customer interest
  3. Identify 2 to 3 prospective licensees (manufacturers) for each category
  4. For each licensee, define an expected set of licensing deal terms including royalty rate, minimum sales, minimum guaranteed royalties, territory, channels and term
  5. For each category, estimate the total sales and projected royalty revenue
  6. Based on the findings, make a recommendation as to the viability of brand licensing as a go-to-market strategy
  7. Articulate the investment needed and the actions required to launch a brand licensing program
  8. Summarize the findings and recommendations in a summary PowerPoint presentation you can share with senior management

Before you can accomplish these steps, you will need to know the answers to the following questions:

  • What is the strength and equities 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 2017 alone were greater than $10 billion. This equates to more than $270 billion in brand-licensed commerce on a worldwide basis annually. With the pervasiveness of brands to extend and expand through licensing, now is the time to determine if brand licensing can help meet your company’s growth targets.

Are you ready to find out?