Licensing- Money Matters Basics
In this lesson, our licensing expert will delve into licensing money matters as they pertain to royalties and what a brand should look for in a licensing partner.
You will learn the difference between a flat and a graduated royalty and about how advertising and marketing affect royalty payments. You will also learn how royalties are adjusted as licensees reach certain milestones.
By using actual royalty rate examples, you will learn first-hand what to expect from a licensee and how to make money so that you can manage a profitable brand.
What is a Royalty?
The basic unit of payment is called the royalty, around which advances and guarantees are structured. Royalties are paid on all sales made by the licensee using the brand. The royalty percentage most commonly for fashion falls between five and 10 percent but, it can be as low as two percent or as high as 15 percent. The minimum guaranteed royalty, or guarantee as it is called, is the minimum amount the licensee agrees to pay the licensor at the end of each year, or contract period, regardless of whether or not they have met the guaranteed minimum sales threshold. The guarantee is charged against royalties. Guaranteed amounts are subject to negotiation and vary depending upon licensee’s and licensor’s objectives.
Factors Affecting Royalty Rates & Guarantees
Factors affecting the royalty rates are varied. They can vary by distribution channel, by geographic territory, by consumer good and/or, for the demand for the brand.