Product licensing is an efficient way to turn a business idea into a product that’s ready for sale. A high-profile example of product licensing in action is singer-songwriter Rihanna’s licensing deal with the Kendo division of LVMH Moët Hennesy Louis Vuitton who launched her makeup collection Fenty Beauty in Fall 2017.
As the (licensor) you give permission to a third party to manufacture and sell one or more of your products within a defined market area. The licensee obtains these rights by agreeing to pay a royalty fee to you, the original owner.
However, as the founder of a global licensing marketplace, I’ve observed that many intellectual property owners have little to no understanding of how product licensing could dramatically support customer acquisition, sales and market expansion goals. Here’s a look at ten clear benefits associated with licensing your next big idea.
1. Create a new income stream
When you own intellectual property (IP), licensing presents a unique opportunity to create a new income stream. By providing and selling licenses to interested parties, you put yourself in a strong position to build revenue. Of course, your licensees will need to generate income through the use of the license. If they are able to do so, your royalties could last for countless years to come with little to no effort.
2. Generate revenue on a faster timeline
There are two sides to licensing that can be extremely beneficial for all parties involved. First, it allows the licensor to take ideas to market in a way that requires much less financing and development resources. Furthermore, for the licensee, the focus is placed on sales activities and market penetration without the need to brainstorm and validate business ideas. For both parties, it then comes down to the fact that they can generate profits in a much shorter time period with an opportunity to grow at a faster rate.
3. Reduce risk for all parties involved
Product licensing is a compelling model because it reduces overall risks of doing business for everyone involved. For a licensor, there is much less risk and expertise needed to sell and market a product. For a licensee, there is much less risk in product development.
4. Expand into new markets with minimal effort
Once a licensing deal is finalized, the licensor can market products in new markets at a much faster and easier pace than if they were to go at it alone. It’s easier because the funding for product expansion (which can be very expensive) is taken on by the licensee.
5. Be your own boss and tap into a billion dollar industry
Like many people, you may dream of becoming your own boss. If you have a strong business idea and product, licensing can provide the opportunity. As a licensor, people go into business for themselves and tap into a lucrative market.
“Retail and related revenue generated globally by the trademark licensing business in 2017 rose 3.3% to US$271.6B,” according to a LIMA Annual Global Licensing Industry survey. “Royalty revenue from sales of licensed merchandise and services rose 2.6% to $14.5 billion.”
6. Launch products with little to no direct expertise
When a third-party acquires a license, as the licensee, they will be much more familiar with a niche market than the average licensor. This type of in-depth knowledge allows for the intellectual property, that a license provides, to be marketed in creative and unique ways that are compelling and relevant to consumers. There is also a chance to improve the product or concept without the direct investment that is usually required.
7. Decrease startup capital and resource requirements
The product development process can be laborious, time-consuming and resource heavy. Also, founders need to gain a strong grasp on marketing and sales. Licensors, on the other hand, only have to worry about building a great product and leave the ‘go-to-market’ strategy to licensees. In contrast, they only have to worry about how to market and sell the product as opposed to building a product from ideation to reality.
8. Work with large scale and established partners
When licensing a product you potentially work alongside some of the biggest companies in the world. Although you may be an inventor or small business, you are still in a position to benefit large businesses. Larger companies employ licensing as a way to reduce costs and risks involved with launching new products.
9. Retain and creatively manage intellectual property
Licensing allows you to get creative in how you own and control your intellectual property. You can leverage third parties who infringe or compete with your product and propose collaborations or expanded deals. This allows you to avoid IP legal matters and furthermore reduce the risk of future litigation.
10. Break into new industries
In the business world, and especially direct to consumer, entering new industries is an exciting proposition. Licensing makes the process much simpler when licensors work with licensees in various industries. By tapping into their expertise, contacts, and customer knowledge, you can rapidly develop your product and serve a larger market in a matter of months.
William Henry Miller is the founder and Chief Innovation Officer for LicenseLake, a global licensing marketplace. William has a passion for helping businesses and individuals grow opportunities, sales and customer bases through the use of licensing opportunities.