Why Do I Need a Licensing Agency?
Emily Wickerham Randles
September 21, 2020
Using a licensing agency versus building a licensing program in-house is similar to a house project – you can take the DIY approach or hire an expert to help. If you hire an expert, your project will likely get done right the first time and maybe even turn out better than you expected. If you take the DIY approach, you may make mistakes along the way, and the project may cost more than you initially thought and perhaps doesn’t turn out the way you envision it. Or sometimes you take the DIY approach, and it turns out great, and you are patting yourself on the back at the end thinking, that wasn’t so hard.
A lot of this would come down to the complexity of the project. Painting a room might be an acceptable project that you can take on yourself at home, but a kitchen remodel is an entirely different undertaking. Licensing is very similar. Your team can handle a quick T-shirt deal with in-house legal advisement and approval from the marketing team, but if you want to build and scale a licensing program, I would strongly advise you to seek help from a top brand licensing agency.
Some may ask, “Can’t I just hire a licensing expert and let them coordinate everything for us?” You can, and I would recommend hiring a point person for licensing, but that person should still seek help from an agency to help plan and execute the licensing strategy.
I know you’re still wondering, “Why do I need an agency if I have an inhouse expert?” Three main reasons:
- Deal Complexity
- Skillset of Team
I have recently been interviewing industry experts for The Brand Licensing Podcast we launched, and the theme of complexity keeps coming up. I interviewed several people that before getting into licensing, they didn’t realize how complex the execution of a program was. Things to consider when developing your licensing program: Trademarks, Product Categories, Retail, Pricing, Territories, Product Quality, Product Safety, Regulatory, Manufacturing, Competitive Set, Packaging, Product Performance, Marketing, and Consumer Inquiries, to name a few.
It’s one thing when launching a product on your own, but working with a licensee and trusting that they are doing all of these things to your standards is hard. That’s where a licensing agency comes in to help! Because we eat, sleep, and breathe licensing deals, we know how to manage all the pieces of a licensing partnership and balance between what the brand owner (licensor) wants and what the licensee wants to do. We have perfected the middle-man role and help the licensees make sure they are checking off all the boxes and getting approvals from the licensor’s functional experts without over-burdening them.
A great example of how a licensing agency can help is the management of a licensee’s roles and the role of the licensor’s team. For example, the other day, I spoke with a brand new to licensing about a licensing apparel deal. The licensee wants to launch next summer, and the brand owner said we could never launch next summer, we would need to talk to retail and determine the distribution and how we would sell this in and there is just so much to do. I reminded the brand owner that the licensee would take care of all of that! One of the great things about working with a licensee is that it’s like bringing on a full new execution team to launch a new product. You still get to approve everything, but they do the work to develop, manufacture, and sell the product at retail!
When launching a new product with a licensee, you don’t want to experience a “gotcha moment” and realize one of the critical boxes was not checked off. Or you don’t want to slow your launch down so much because it’s taking forever to check all the boxes with your internal team that you miss your product launch window and the product flops or never gets to market. Working with an experienced agency helps make sure things run smoothly. Please don’t get me wrong; the assigned Licensing Director for the brand still plays a critical role in facilitating approvals, advising on strategy and execution. It’s just that they don’t have to do everything themselves. This is especially important if as a brand, you are wanting to launch and have multiple licensing deals completed at one time.
Skill Sets/Expertise in Specific Areas
As an agency, we have different functional teams that work on licensing programs, depending on their stage. We break these areas down into our three core services: strategy, sales, and program management (Link to each services post). The person who is an expert at strategy is different than your lead sales executive and a different skill set than our project managers. I can personally attest that your project manager will not be as effective at sales as your sales team and vice versa. Yet, when your sales contact manages a program, they will jump straight into sales details and skip over some of the essential details of product development.
We also have expertise in licensing legal contracts, royalty accounting, quality control processes, creativity, and other specific functions.
Suppose you have one in house person trying to take care of all of these functional areas, it’s difficult for them to be effective in all three functional areas of a licensing deal. They might be excellent at developing a strategy, but they might struggle to sell and execute a deal. Or they may be great at selling and have five deals lined up, but are they strategically the right five deals, and can they help with execution to successfully launch in the market?
Could a brand hire and build an in-house team to address all of these pieces? Yes, of course, and some companies do just that. However, for most brands, you should think of it as hiring your PR and Ad agency. You would want to hire experts in the field and work with them in collaboration to execute your strategy effectively. It would be best if you considered investing in a licensing agency the same way you would invest in an ad agency as part of your marketing plans and initiatives.
We would recommend hiring an excellent project manager in-house to manage your licensing program. This person needs to have a vision for the brand and brand extension. They need to be empowered and able to make decisions, and they need to be very collaborative and happy working with partners.
One reason you may not want to staff a licensing department fully is cost. Even a headcount of 2.5 will likely cost more than an agency’s fee. The licensing agency compensation model is mostly commission-based, meaning that you typically pay a retainer or development fee for the first year or two of a program, but once the program starts earning royalty revenue, the agency’s compensation comes from commission of royalties. Unlike advertising and PR, licensing is the only marketing initiative that has a direct return and generates revenue back to the business. However, that doesn’t mean you shouldn’t invest in it to be successful. Investing in working with a licensing agency and even creating a style guide is essential when kicking off your licensing program. To think that starting a licensing initiative will magically generate significant returns is not realistic. Like most things, you get out of it what you put into it. If you don’t invest some time, money, and talk to the experts in licensing, you may not get the results you expect.
In CPG, we explain to prospective clients that licensing is a long game. Depending on the category and product, it can take 3-5 years to start seeing significant returns. For entertainment, fashion, and lifestyle segments, that timeline can be shorter. That said, the planning piece is still critical, and planning for a movie release can be a year or more to ensure everything is ready to go and in retail when the movie finally makes its debut. You don’t want to miss your window of opportunity with these types of programs.
Finding a Partner
It’s important to note that you can structure a deal with a licensing agency based on your needs. Maybe you have an awesome program management team in-house, but you need help with sales or strategy. Or, maybe you have plenty of potential deals coming in, but you need help to determine what deals you should do and you need help executing them. Talk to a potential agency about a deal structure that works right for you. You can always make adjustments to how you work together down the road if you need to scale up or back in an area.
It’s also vital that you find an agency that works well with your team culturally. While licensing deals are complex, the nuts and bolts of how agency work is not that different from one another. For us at IMC, it’s about the people. We have a passion for putting people first so we can realize something bigger together. If you need help with your licensing program, or just want to run a few thoughts and questions about licensing by us, schedule a quick introductory call.