Brand Licensing: Rent A Fanbase, Not More Clicks | David Born, Born Licensing

I think one of the, the first questions that, like, an, an operator or, like, a founder that I would present that, um, that idea to, uh, like, one of the first questions [chuckles] that they would have is: What does it cost? Um, and let's say a brand does, like, a few hundred thousands a month or, like, a few million a year in terms of revenue, have never done something like that.

Like, what would it cost for something like that? And at what stage of the business does it begin to make sense?

You know, it's funny, Andrei, because I get contacted sometimes 10 times a day from companies that kind of need help with licensing.

And when I jump on a call with them, the first question they ask is: How much does it cost? Uh, and, um, the answer is, is relatively long, so let me dive into the detail because it, the, it's not kind of like, "Oh, it's definitely gonna cost this much." I usually have to ask a lot of questions because it depends on your category, your market, your sales projections, your, uh, the license that you wanna sign, who owns that license.

But the general rule of thumb is that, um, there are two things in a licensing agreement that everybody needs to be mindful of.

The first is something that's called the minimum guarantee.

The second is the royalty.

So the minimum guarantee is what...

It is an amount, is a fee that you're going to agree to pay the licensor regardless of how much the, um, product that you sell.

Even if you sell zero product, if something g- doesn't go to plan, you end up not selling the product whatsoever, you're still on the hook for this minimum guarantee.

Now, the royalty.

The royalty is the percentage of sales that you'll be paying to the licensor.

W- the licensor is the company that you're licensing the IP from.

Now, the royalty rate, you'll be reporting royalties on a quarterly basis, and that will offset the minimum guarantee that's been agreed.

Let's go back to the minimum guarantee because you're probably wondering, like, how, how do we even agree on a fee? What is that minimum guarantee going to be? Well, that, most of the time it depends on sales forecasts.

So let's say, for example, a T-shirt company wants to get a Hello Kitty license.

They go to the Hello Kitty team.

What they'll need to do in order to determine what the minimum guarantee is going to be is provide sales projections.

If you had a Hello Kitty license for your T-shirt brand, um, for, say, a two-year period, what would your sales be? And they'll look at, at your sales forecast, and they'll apply- the royalty rate to that, and then that will get them to the minimum guarantee.

Now, royalty rate will typically be for an e-commerce brand, it's on average around 10%.

So let's say, let's use a, a, um, you know, an example of, um, a T-shirt company wants a Hello Kitty license.

They think that they'll do $10 million of sales within the first two years of Hello Kitty branded product.

Um, with a 10% royalty applied to that, we're looking at, you know, more or less $200,000 as a minimum guarantee.

That is essentially what you're on the hook for to pay for the Hello Kitty license, regardless of how much that you sell.

Now, it's not all gonna be due on signature.