Do you want to expand your business and make money without investing a dime? If YES, here’s a complete guide to licensing your business name, idea or brand to others.
It is common sense that everyone going into business would always look for the best business models that will help them grow their business to enviable heights. Taking advantage of a good business structure when building your business is a smart business decision that will ultimately determine how much you will make from the business and how far reaching your business can go.
We have two business growth structure and they are:
These are the business structures that you can access if you want to launch a business or if you want to generate more money for your business.
Instead of spending years to create a company or product and popularize it by way of marketing, advertising and distribution, an entrepreneur can take advantage of the aforementioned parameters that were already set on ground by the original initiator of the business.
Table of Content
What is Licensing?
Licensing simply involves giving a company the rights to manufacture products, use names and offer services that are normally owned by another company.
It is a business model that allows entrepreneurs or organizations make use of your business name and/or trademarks for a fee as agreed by both parties. Or better put, it is a written contract in where the licensor (the owner of the company) gives the licensee (an entrepreneur, or business organization) the right to make use of his company’s brand, logo, trade mark, copyright, know-how or intellectual property.
It is important to state that the Licensing business model can be very specific or broad in terms of what intellectual properties the licensee can use and how they expect to utilize it.
The business Licensing model is often used for the sale of products and a typical example is when an animation company pays a product company to make use of an image in their cartoon or animation as a character. In some cases, the business licensing model is used as alternative expansion model to achieve brand awareness and create more marketing channels in order to gain more share of the available market.
Licensing Vs Franchising: What’s the Difference?
1. The franchising business model allows the franchisor to dictate the exact methods and systems (such as building style, uniforms, menus (for food related businesses), fit-out and where the business is to be located.
Whilst in the licensing business model, the buyer of the license which is known as the licensees is free to develop their own business model. They are free to choose the building style, uniform and the location they want to operate from, but they cannot alter the logo, trademark or business name of the licensing company.
2. The franchising business model allows the owner of the company i.e. the franchisor, to effectively monitor the franchisee in the running of the business. As a matter of fact, they go all the way to enforce the performance criteria or quota requirements that the franchisee must meet and maintain.
While in the business licensing model, the buyer of the license (the licensee) is not obliged to meet any requirement criteria or even comply with performance standards from any overseeing organization.
3. In the franchising business model, the franchisees are expected to pay certain fees, which could include payments to a marketing fund. If you are the owner of a franchise, you are paid a fee, usually an upfront fee, plus an ongoing royalty payment plan that could be a percentage of sales or a fee per product sold et al.
While in licensing business model, the buyer of the business license pays certain fees which is usually one-off and in this case, the owner of the company will not be permitted to operate a marketing fund.
4. Anyone who buys a franchise from a company is allowed by the agreement to make use of the company’s (the franchisor’s) intellectual property (e.g. trade marks, menus, advertisement jingles, logos and every brand identity). So also, a Licensee is expected to use the trademarks and intellectual property of the licensor if they so want.
In summary, the most distinctive feature of a franchising business model is that a franchisor exercises significantly more control over franchisees than a licensor. Unlike in the licensing business model, the franchising business model must contain specific directions on how the buyer of the franchise must operate the business and give detailed specifications on the level and type of marketing that each franchisee must carry out when selling to customers.
How Licensing Works and Make Money for the Licensor
The owner of the brand or business name that has been licensed gets royalty, which is a percentage of the money that is generated from the use of his brand, patent, trademark, business name, design etc. For example, the Milan fashion house, Versace licensed its perfume line, skin care products and makeup to Euroitalia for a whopping 111 million dollars. So, basically when you put your brand up for licensing, you are agreeing to rent out your brand identity to another business that will make use of it to manufacture and sell products that bear your name.
A great many consumers will assume that the products with your name on it is produced by you, therefore before agreeing to a licensing agreement, it is necessary to ensure that the standard set by the licensed brand meets your already existing benchmark to avoid damage to your reputation.
Benefits of Licensing your Business Name, idea or Brand to Others
There are many benefits of licensing your business name or brand to others. As a matter of fact, in a good licensing deal, the licensor (the owner of the business) and the licensee (the business or person who wants to use the already existing brand) gain.
The licensor is able to make his brand even more popular than it is before and generate more income without having to invest more money; while the licensee has the advantage of using a brand name that is already well known which will help them to skip the whole newbie phase and move to immediate awareness and enjoy the trust their previous customers have come to expect.
Licensing your Business Name and Brand to Others – A Complete Guide
1. Before you think of licensing your brand to others, you must first secure your intellectual property. Get a lawyer to help you trademark the brand name of your business. From then on, you can then begin to improve your brand through aggressive marketing, sales and public relations efforts.
2. Employ the Service of a Licensing Agent
After you have secured your intellectual property, you will have to engage the services of a licensing agent. He will help you to determine if putting up your business name or brand for licensing is the right move and will also help you to decide if your business is matured enough to be licensed. He will then help you to draw up a licensing plan that will be utilized to find the appropriate business partner and also negotiate the arrangement.
3. Find your Market
If you intend to license your brand to a company, you may have to first pitch the product to the company even before you go ahead to patent it. Their reaction will reveal to you how viable the product is. If the reaction is negative, then you will know that that particular brand will most probably not find people who would agree to license it.
4. Scale the number of licenses to one or two per product and per area.
On a final note, remember that if your business or brand is not well managed, strong and protected, many licensees will not spare your business a second thought. Work on your business first before you seek out potential licensees and in the same vein, only license your brand to companies that are well run, recognized and financial afloat.
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