Licensors expect that the licensee will be committed to investing in the category they license. This means they will work hard to understand the essence of the brand and develop their licensed product in a way that captures that essence. In other words, the licensed products should connect with the consumer both functionally and emotionally. If the licensee does this, the products they develop will normally be approved without delay or difficulty. To achieve this takes time and money.
So while both parties want to commercialize the category as soon as possible, the licensor will expect the licensee to start with building the brand into the product first. The licensor will also expect the licensee to be familiar with the contract and to meet the obligations of the contract. That is why it is important for the licensee to ensure all employees in the licensee’s organization working on the license are familiar with its contractual obligations.
For example, when a product becomes approved, the licensor will expect the licensee to commercialize the licensed product expeditiously in each of the authorized channels. Finally, the licensor will expect the licensee to meet or exceed the projected sales targets for the category as outlined in the contract. When all of these things happen, the result can truly be award winning products that meet or exceed annual sales and royalty projections.
Licensees, in turn, expect that the license they have acquired will provide them with sales growth, and rightfully so. This sales growth may be in the form of growth within existing channels or the opportunity to enter a new channel or new market. To accomplish this objective, licensees expect that the brand they are licensing is as strong or stronger than they believe or have been told, that it will open doors and ultimately help them meet or exceed their business objectives.
Moreover, licensees expect that the licensor or their agents will run a simple, straight forward licensing program that will not administratively tax their organization. Finally, they expect that the licensor will approach the licensing relationship with a win-win attitude that will allow them to move quickly to take advantage of opportunities that present themselves. Because licensing contracts obligate the licensee to sales targets and royalties, the licensee’s goal will be to quickly achieve sales of licensed product to meet these requirements.
[subheading]ROYALTY AND PAYMENT FLOW[/subheading]
Royalty is the monies that are paid to a licensor by the licensee for the right to use the licensed property. It is calculated by multiplying the Royalty Rate by the Net Sales. Below is an example of how the royalty payments would flow from the retailer to the licensee and ultimately to the licensor. The example assumes a 10% royalty rate.