Do you have a great idea for merchandise, but feel it would be even better with some big names behind it? Maybe you have a fun idea for a t-shirt using your favorite cartoon characters. Or maybe you have a unique product perfect for sports fans, which you feel consumers would love even more if it carried the name of their favorite team.
These are all reasons to try to license a brand for your merchandise. But it may be a lot harder than you’d imagine, especially if you are a start-up e-commerce site, a mom-and-pop retailer or a small manufacturer or designer.
Let’s explore the benefits and drawbacks of licensing a famous character – often called character licensing – for your merchandise. Then, we'll see what it takes to land a licensing deal.
Benefits of character licensing
It could increase product sales.
It may attract more attention to your product.
It may help a product resonate more with your demographic.
It may you avoid lawsuits you could face if you use intellectual property without permission.
Potential drawbacks of character licensing
It may be costly.
It can be challenging to get approval.
You may have to adhere to specific standards and requirements in the way you can use the brand or character.
How do you license a brand or character from a big company?
When you license a brand from a big company, you’ll need to reach out to that company’s licensing agent. Most big brands have standard applications for licensing, and the company will set the rate you need to pay, both upfront and in royalties.
If you license a big brand, expect to pay royalties to the company, which is a set percentage for each item you sell that bears their brand, plus an advance payment.
You’ll also need to provide a minimum guarantee or accept the licensor’s minimum guarantee offer. The minimum guarantee is a promise that you will pay the licensor a specific amount based on your estimated sales. In most cases, the advance you pay the company for licensing rights is 25% to 50% of the minimum guarantee.
There’s one thing you should never do, no matter how badly you covet a specific character: Don’t reproduce the character or brand without permission.
Tips for negotiating a minimum guarantee
Calculating a minimum guarantee can be tricky business. You might ask to split the minimum guarantee into separate installments, giving your business time to recoup your investment as you make sales.
When you discuss minimum guarantees, you might also consider asking the licensee to limit the scope – territories you sell in – to make it easier to focus on profitable territories. You can also limit product categories to minimize your risk.
Consult an (intellectual property) IP law attorney
If you’re a small business owner who wants to license a big brand, you may want to draw up the agreement yourself, but you should seek the counsel of an intellectual property (IP) attorney before you sign on the line.
An IP attorney can help you draw up a contract that ensures that the responsibilities and terms of the agreement are fair and clear, that both parties understand how the licensed property can be used, and even outline jurisdictions and venues if there is a later disagreement or lawsuit over the arrangement.
[Read more: Guide to Intellectual Property Rights]
Happy endings
It’s easiest to license a brand if you already have a company with widespread distribution channels — and a reputation for successful licensing agreements. For instance, Beverly Hills Teddy Bear licensed a plush for the famous pig “Babe,” based on the Universal Studios movie of the same name. The company co-founder and CEO, David Socha, had worked for a licensing firm in the past, so he understood the ins and outs and how to present a deal to Universal that led to approval.
According to Inc., Socha earned $2 million in gross revenue with just $200,000 in royalty payments to the movie studio. More significantly, it opened the door to other licensing agreements, and the company now licenses brands for more than 60% of its merchandise.
What If the brand says no?
Reading Socha’s story might make it sound like it’s easy to license your brand, even from the biggest names in Hollywood. But in reality, most companies keep tight reins on their licensing agreements.
However, if a specific, well-known character is not integral to your product line, you might consider licensing a lesser-known character from a smaller artist – or even commissioning an artist to create original work for your products. Your characters could become well-known, and people may look to license them from you, leading to residual income from royalties and even more recognition for your brand.
The steps for licensing a brand from a smaller company are the same as from a larger company. You may find that minimums, royalties and advances are less. In some rare cases, you might even work directly with the artist, creator, or business owner instead of a licensing agent.
Understand copyright law and why you need a license
There’s one thing you should never do, no matter how badly you covet a specific character: Don’t reproduce the character or brand without permission. Characters, logos, and other elements of a brand are copyrighted or trademarked property, depending on whether you are referring to a company logo or a character. In both cases, they cannot be reproduced and sold without permission. At the very least, you could receive a “cease and desist” order from the company’s legal team. At the worst, you could be looking at substantial fines or even a lawsuit.
However, there’s never any harm in pursuing a licensing agreement. The worst the company can do is say no, leaving you to seek out other characters or brands to license.
Licensing brands can be a complicated and lengthy process, but the effort could be worth it if your product and the licensed brand are a good fit that resonates with your audience.
[Read more: Intellectual Property: Differences Between Patent, Copyright and Trademark Laws]
CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.
Follow us on Instagram for more expert tips & business owners’ stories.
CO—is committed to helping you start, run and grow your small business. Learn more about the benefits of small business membership in the U.S. Chamber of Commerce, here.
Join us for our Small Business Day event!
Join us at our next event on Wednesday, May 1, at 12:00 p.m., where we’ll be kicking off Small Business Month alongside business experts and entrepreneurs. Register to attend in person at our Washington, D.C., headquarters, or join us virtually!
