- June 03, 2012
Pierre Cardin, the most extreme form of a fashion brand in licensing is for sale for $1 Billion Euros. Many companies are questioning whether there is riches to be had licensing out their brands. The key to success is to license out categories that the company is not expert in, but would like to eventually grow.
Licensing is the when you allow other companies to make products with your brand name on them, in exchange for a royalty payment. Many times this royalty payment can range from 3-10% of revenues, depending upon the amount of marketing support and strength of the licensors brand name.
Brands love to license their name as royalty checks come regularly with no capital outlay to support the revenue stream. Royalty payments drop straight to the bottom line on many company balance sheets, which frees up capital to concentrate on core categories. Another common negotiating point is a guaranteed royalty payment, so the licensor knows it will get a minimum amount even if the license fails in the particular category.
The risks of licensing your brand are that it may degregate your brand equity due to the channel of distribution or product category. The key is to test the waters in certain categories close to the brand’s heritage, and then slowly expand into outlying (profitable) categories.
Overall, if you have created a brand that has consumer equity, and you also would like to expand into new categories without the upfront cost of development and inventory, licensing is a great way to grow your bottom line profits.