Quick Answer: How Do You Negotiate A Licensing Agreement?

Is licensing a good idea?

Licensing offers a balance of risk and reward, because it allows you to leverage the success of an already established company for distribution.

On the flip side, if you license a product to a company already doing those things, you can take a shortcut, and work your way into major retailers without as many hiccups..

What is the difference between licensing and royalties?

Royalties are usage-based payments for using an asset or property. … Meanwhile, a licensing fee is money paid by someone using someone’s property, but this fee is generally a fixed amount. Royalties can be collected for things that are also licensed, such as patents.

How do I get idea royalties?

Here are a few things you can do to get a higher royalty rate for your invention.File a non-provisional patent application or have an issued patent. … Establish proof of demand. … Pull-through marketing. … Manufacture and sell the product first. … When negotiating, ask the company first instead of throwing out a number.More items…•

How do you set up royalties?

A distributor collects royalties directly from stores/streaming platforms on behalf of labels. An artist’s label will then collect the recording royalties and distribute them to the artist. If an artist is not with a label, the artist will collect the recording royalties directly from the distributor.

What is a fair royalty rate?

There are no standard royalty rates-they can range from less than 1 percent to more than 30 percent, but most hover around 5 percent. The actual percentage depends on various factors and your negotiating skills.

How much money can you make off royalties?

The government-mandated royalty rate is 10.5 percent of the gross revenue minus the cost of public performance. The average rate per stream is about $0.005.

What are three types of licensing agreements?

The most common types of licensing agreements include technology (patents), trademarks (merchandise), copyright and trade secrets (know-how). Sometimes these agreements include more than one type of IP.

How does product licensing work?

Product licensing involves two parties: a licensor and a licensee. The licensor owns the rights to certain intellectual property (IP) while the licensee manufactures products using the IP granted by the licensor via a license agreement. … The licensor is able to offer new products that fall outside its core competencies.

How are royalties calculated?

Royalty payments are calculated on the types of royalty agreement made between two parties – it can be calculated on gross revenue, net revenue, price per unit, minimum sale, or fixed amount. Basically, a percentage of net revenue is given to the owner for exploitation of licensor’s intellectual property.

How do you negotiate royalties?

When negotiating terms, always establish a minimum guarantee income. That way the licensor guarantees himself / herself a pay check regardless of the licensee company’s performance. 2.) Avoid terms that involve royalty rates based off net profit.

How do you negotiate terms and conditions?

How to Plan Contract NegotiationsList and Rank Your Priorities. … Know Your Bottom Line. … Set the Benchmarks. … Assess Risks and Liabilities. … Determine Whether You Need a Confidentiality Clause. … Walk a Mile in the Other Party’s Shoes. … Select Your Negotiating Team. … Assess Leverage.

What are the types of licensing?

How to decide between types of licensing agreementsPatent Licensing. Patents cover science and innovation. … Trademark Licensing. Trademarks are signifiers of commercial source, namely, brand names and logos or slogans. … Copyright Licensing. … Trade Secret Licensing. … Exclusive. … Non-exclusive. … Sole. … Perpetual.More items…•

What is a good royalty percentage?

Royalty rates vary per industry, but a good rule of thumb is between 2-3% on the low end, and 7-10% on the high end. I have licensed consumer products for as low as 3% and as high as 7%, with 5% being the most common and a generally fair number.

What is an example of licensing?

Examples of licenses include a company using the design of a popular character, e.g. Mickey Mouse, on their products. Another example would be a clothing manufacturer like Life is Good licensing its designs and brand in a certain country to a local company.

What are the 3 P’s of licensing?

The 3 P’s of collegiate licensing are protection, promotion, and profit.

How do you negotiate a product licensing agreement?

How to Negotiate a Licensing Agreement Like a ProDo your homework. Before you begin negotiating, you need to understand your licensee’s business. … Start with a term sheet. … Manage your expectations. … Be patient. … Have a win-win attitude. … Don’t lose your sense of humor. … Remember to hold something back. … Put yourself in their shoes.More items…•

How do you do a licensing deal?

Here’s how to do it right.Show success. As an entrepreneur in the midst of executing a licensing deal, Tamara Clarke has learned that potential licensees want to see not just a good idea, but also a substantial track record. … Get an agent. … Protect what’s yours. … Find the right fit. … Reverse the model.