Product licensing: ideas for sale!
What do you do when you have a great product that has the potential for widespread appeal, but you aren't able to produce it on a large scale? Licensing a product to someone else provides you with an opportunity to make money in royalties while they do the “heavy lifting”.
What is product licensing?
When you license a product, you agree to hand over control of its manufacturing, distribution and marketing, along with any associated intellectual property rights such as patents or trade-marks. In return, you receive a percentage of sales once it goes to market.
How can licensing help your business?
- Freedom — When you license a product, someone else is responsible for making and selling it. You have more time to develop new ideas and acquire more licensees, either for that product or others you've designed or invented.
- Scalability — An established manufacturer can often produce larger quantities than you would be able to on your own, which can lead to more sales and therefore more income in royalties for you.
- Exposure — Partnering with another business can expose you to new customers and new markets, resulting in more sales. A partner with the money and desire to pay to license your product will likely have established distribution channels and marketing budgets, and the ability to launch your product more quickly.
What are some of the disadvantages of licensing?
- Loss of control — When you license your product, you give up control of what happens to it, which includes everything from where the materials are sourced to how the final product is promoted. You might not agree with the way the licensee represents your creation, or how it is handled compared to other products in the licensee's repertoire.
- Market fluctuation — Many licensing agreements have fixed terms, which means that you are tied to the agreement for a certain amount of time, whether things go well or not. If things change in the marketplace to negatively affect sales (for example, new competitors or a shift in trends), you could be stuck with a smaller return until the contract ends.
One way to retain some control is to negotiate certain provisions in a licensing agreement before you sign the contract. You may want to hire a licensing agent to navigate issues like exclusivity and infringement.
Licensing is competitive, with many people hoping to get their work licensed. You'll need to have patience and persistence to get the attention of potential licensees. If you are successful in getting a licensing deal, you can work on your next idea while you wait for the royalties.
To get started, find out more about licensing and technology transfer opportunities.