One of the most common questions we get asked is: "How do I know which licensee to choose?"
With so many companies in each category, it can become confusing.
Some of the more battle hardened and cynical souls out there might say choosing licensees is easy – just pick whoever will commit to the biggest minimum guarantee.
Alas, it’s not always as easy as that, and getting licensees willing to commit and pay high minimum guarantees does not happen by accident.
Here’s our seven top tips on how to select the best licensee:
1. Create a professional, commercial brand presentation and deliver it with relevant focus and impact
If you make a half arsed approach at presenting your property out to licensees, failing to include commercially relevant data, you could appear to be in brand owner la-la cuckoo land.
Those gritty commercial souls whose life is spent travelling the motorways of this land to face the cold, hard reception often awaiting new products in retail buying offices need impressive commecial reality from your brand presentations.
Don’t lie, but you need to impress people with the scope and size of the opportunity your brand presents. This is very rarely achieved by stating how ‘amazing’ the production values or script are…
So what, it could look crap, but if there is a serious commecial proposition behind it, then licensees will want it.
And if you present based on a realistic commercial understanding of where your brand fits, you will begin to attract more Llcensees, even where the proposition is weaker, because you project an understanding of scale/scope and where your brand fits.
2. Run a pitch process with clear structure
Clearly there are great benefits from running a competitive pitch process. If the brand you are presenting is even half way to selling product through retail, a competitive itch will give you a structured framework to assess licensees.
Barging in there and saying, “but if you won’t step up and pay the big bucks, these other five companies will,” is not a wise approach, because you'll turn off licensees who could be good partners. You could fail to stimulate competition in the way that a more indirect and gentle approach might.
3. Minimum guarantees are important, but not everything
Yes, a high minimum guarantee committment is a good start point, and a statement of serious committment, as are the other commercial terms like royalty rate, payment schedule, size of advance, definition of net sales and more. However, to select licensees who will do the best job all round for your brand, you also need to look beyond the commercial terms.
What is the product development capacity and quality of output like? What is the distribution set up like, and are there any gaping holes in it? For example, a company who for whatever reason doesn’t supply Argos in the UK is going to miss a huge chunk of the market.
4. It’s not about the size or strength of the licensee, it’s about the size and strength of their committment to your brand
You can grant a licence to the biggest company in the world, but if their commercial departments and teams are barely interested, you will not get good results.
And the reality is that for all the importance of the minimum guarantee, the reality is longevity and over recouped royalties are what delivers massive income for some licensors.
So make sure they really want to work on your brand. Make sure it will get focus, and make sure they haven’t signed for reasons which don’t serve your needs, like cutting out competition to other brands, land grabbing rights regardless of intention to use, or interest based on flawed thinking/misunderstanding.
5. Credit check/reputation check all potential licensees BEFORE signing
For those in corporate companies, you will probably not need any extra process/due dilligence advice, but for those in smaller or less corproate companies, it is 100 per cent essential to credit check and reputation check every single licensee.
Credit checks should reveal whether a company is in dire straits, which should increase your chance of getting paid. Reputation checking should help you work out whether a licensee has a reputation for not paying minimum guarantees, or other such shenanigans.
Don’t know who to ask? You must know someone. Look at licences a particular licensee has signed, and call the brand owner/licensor for at least informal feedback.
6. Beware allowing Licensees to venture into uncharted waters with your brand
Be wary of a licensee who doesn’t have proven credibility, experience and commercial success in a particular category. Let them foray with someone else’s brand, and when they have proved they can do it, ok.
7. Construct a licensee matrix strategically
It’s really easy to suggest you shouldn’t just chase opportunities that present themselves, but obviously it's hard to walk away from someone offering to give you a big cheque.
The reality is though, that if you review the biggest licensed brands, they run a (mostly) strategically planned matrix of licensees. What does this mean in practice? Well it might mean picking a smaller number of strategic partners who can take multiple product/category rights and deliver the biggest chunks of opportunity.
it might mean building a matrix across markets/regions/continents, but what it probably doesn’t mean is signing a deal with everyone that comes along, and then getting frustrated when a bigger deal comes along, but you can’t do it, as you’ve thrown away the bigger opportunities on the first person to pick up the phone and send you a proposal.
Frankly, there are other tips on this topic. In fact this could probably be expanded to a full published book, but this should act as a quick intro and a few tips to help those struggling to understand where to start.
About the author
Steve Reece runs Virtual World Licensing, a brand consultancy whose mission is to facilitate offline commercialisation of virtual worlds. You can find out more or get in touch at www.VirtualWorldLicensing.com
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