In their quest for sustainable growth, brand owners may find themselves in one of two categories in regards to brand licensing:
First, you may have been considering launching a brand licensing program for several months or even years. However, you may be hesitant as you just don’t know how much royalties your brand could generate and whether you would gain a sufficient return on investment from those royalties to make such a program worthwhile to your organization.
Second, you may have had an existing brand licensing program for quite some time and have been wondering if it is fully optimized. Perhaps you are wondering if most of your royalty revenue comes from only one or two licensees. If you believe your royalties are spread evenly across your licensees, you may be wondering if most of their sales are coming from one or two retailers. Or perhaps you are wondering if you can expand the program to new business categories.
In either case, a brand licensing program audit should be considered.
Brand Licensing Program Audit Overview
If you find yourself in the first camp trying to determine how much pent up demand exists for your brand in categories that could be licensed, a brand licensing program audit is specifically designed to answer the following questions:
- What kind of royalty revenue can my brand generate?
- How much will it cost for us to get started?
- How long will it take to reach critical mass?
- What will the ROI be?
The Blake Project will work with you to evaluate what new categories your brand is ready to extend into, the range of sales your brand will generate through brand licensing and what the range of royalty revenue you can expect to be brought into your company. We will then evaluate what the cost would be to either launch the program internally or by utilizing a brand licensing agency. From this we will determine what your ROI will be. The audit focuses on how you can use your brand’s strength in the market place to generate royalty revenue for your company while extending the brand into new categories where your consumers and customers expect it to be.
To help you properly evaluate the viability of launching a brand licensing program, together we will:
- Identify the top 5 – 8 categories in which to extend your brand
- Prioritize those categories by potential consumer engagements, royalty revenue and customer interest
- Identify 2 to 3 prospective licensees (manufacturers) for each category
- For each category, define an expected set of licensing deal terms including royalty rate, minimum sales, minimum guaranteed royalties, territory, channels and term
- For each category, estimate the total sales and projected royalty revenue
- Based on the findings, make a recommendation as to the viability of brand licensing as a go-to-market strategy
- Articulate the investment needed and the actions required to launch a brand licensing program
- Summarize and present the findings and recommendations in a PowerPoint presentation
Specific input is critical to this audit. As such we will be interviewing team members and other key stakeholders including retail partners. The input will be designed to answer the following questions:
- What is the strength and equities of the brand?
- What new categories can the brand enter that will leverage its strength and equities?
- What is the market size for each new category and expected growth over the next 5 years?
- What company is the category leader and what is its market share?
The deliverable for this audit is clarity on the ROI of a brand licensing program. The ROI forecast will be calculated by determining the cumulative royalties projected to be generated through the third year of commercialization divided by the total costs to launch the program.
If you are in the second camp wondering if your existing licensing program is optimized, we will work with you to answer the following questions:
- Does the licensed product reinforce its brand’s positioning?
- Do consumers have access to the licensed product through every designated retail channel or region authorized in each licensees’ contract?
- Are the net licensed product sales and royalty revenue growth balanced across retailers and Stock Keeping Units (SKUs)?
- Are the licensees in good financial health and do we have strong processes in place to find qualified replacements?
Our optimization audit is designed to gain clarity on whether you brand licensing program is indeed optimized, and if not, what steps can be taken to alleviate any major gaps.
We will work with you to evaluate what areas are out of balance and by how much. You will gain a good understanding of any hidden risks in your brand licensing program and how much they can impact its viability. We will then evaluate what the cost would be to remedy those risks and how quickly you must take action. From this we will determine what your ROI will be.
Here are the eight areas we will evaluate to determine your brand licensing program’s level of optimization and what is needed to get it on track:
1. Portfolio Balance
a. Is the overall brand licensing portfolio properly balanced?
b. How many licenses does the program have?
c. What percentage of the licenses comprises 80% of the net sales?
2. Category Alignment
a. Is your program licensed in the right categories?
b. Does the brand have permission to be extended into the existing licensed categories? (internal research – brand research)
c. If so, are there category positioning statements written for each category?
3. Licensee Search and Suitability
a. How are you prospecting licensees to ensure you are finding the best suited to support your program?
b. Where do you look for information when prospecting licensees?
c. What parameters are used to shortlist licensees from the universe?
4. Licensee Health
a. What is the overall health of your licensees?
b. When was the last time you checked their audited financial statements?
c. Do they have any current or pending law suits that could seriously impact their business?
5. Category Management
a. How often are reviews conducted with each licensee to ensure they are meeting their objectives? Annually? Quarterly? Monthly?
b. What questions are being asked in the review?
c. Who from the licensee is attending the reviews?
6. Licensee Orientation and Alignment
a. Is there a robust orientation program in place?
b. If so, who attends the orientation and when does it take place?
c. How often do you meet with the licensees individually and collectively?
7. Business Planning
a. Is there an existing business planning process in place?
b. Do you use a licensee summit to review the planning process?
c. How often do you discuss the plan with the licensees?
8. Contract Quality and Accuracy
a. How robust are the contracts you currently have in place?
b. Do they accurately reflect the deal terms and procedures being practiced?
c. When does each of your contracts expire? Is there proper succession planning?
The deliverable of this audit will expose any vulnerabilities of a brand licensing program across the eight areas of evaluation and what actions are required to correct them.
In both audits we educate clients throughout the process so that all program managers are speaking a common language. For instance, we will provide a glossary of brand licensing terms as an easy reference guide. We will make sure members of your team understand how the licensed product and the royalty payment each flow. Finally, we will make sure that everyone has a clear understanding of standard brand licensing deal terms and what are the customary royalty ranges they can be expected for their brand.
A brand licensing program audit should be high on the list of priorities for those with an existing brand licensing program and those considering a program. Contact us for more.
The Blake Project Can Help: The Blake Project’s Brand Licensing Audit
Branding Strategy Insider is a service of The Blake Project: A strategic brand consultancy specializing in Brand Research, Brand Strategy, Brand Licensing and Brand Education