What you should know about licensing agreements
If you’re a business owner without the means to bring an idea to market, becoming a licensor may be a good option.
Do you have a product that you think will be successful, but you lack the infrastructure to bring it to scale? A licensing agreement can be a profitable option for solo entrepreneurs, inventors and many business owners.
Licensing is essentially an agreement between you (the licensor) and another party (the licensee) to take your product to market. In return, you receive either a lump sum or royalty payments for each item sold. To protect your rights, have your attorney involved in every stage of the licensing process.
Some basics of a licensing agreement
What are the benefits of a business license agreement?
Once you license your product, someone else assumes the responsibility for manufacturing, marketing and distributing it. This is especially attractive to “serial entrepreneurs” who like to develop one product, sell it and move on to the next.
A business license agreement also makes sense for products that can be sold to multiple companies you might have difficulty accessing yourself. For example, sports-team branding can be vital to the success of your product but difficult to secure as a business.
Rather than approach all the professional teams in a league, you work out a licensing agreement with one company that already has a deal with the league. That company then manufactures your product with the proper logos as part of the design.
What are the drawbacks?
You are limited to a percentage of the profits and, once you sell your licensing rights, you often lose control over production and quality.
Tips for seeking a licensee
Finding a company interested in licensing your product is challenging. Only a small percentage of entrepreneurs land successful business licensing agreements. To improve your chances:
How can you protect yourself?
When you license your product, you need to be sure to protect your interests.
Licensing isn’t simple, but it can be highly lucrative for people who understand the process and know how to protect their interests. If you have an idea or product that fits, it might be worth exploring.
There's more to learn. Continue reading about how to drive sales for your business.