In this article, we’re discussing how licensing for designers works, so you can decide whether that is the right strategy for your design business. In the Home Decor Product Business Article Series, we cover how to launch, grow, and expand your physical products business.
We have covered different ways to launch your product, different methods for launching a product line, how to sell, how to market, and so on.
- Licensing can be a desirable business strategy for designers, as it allows them to create passive or semi-passive income by licensing their brand to other companies for creating and selling products with their logo and aesthetics.
- Before pursuing a licensing deal, designers need to have a strong brand and follower base to be considered a licensor.
- Licensing deals can take different forms, such as co-creating a product line with a manufacturer or establishing an endorsement deal with a ready-made product. Licensing agreements can be exclusive or non-exclusive, with varying degrees of control and duration.
- While licensing deals can be profitable, particularly for globally recognized brands, smaller businesses may not experience substantial revenue from licensing alone.
- Designers should be aware of the potential disadvantages of licensing, such as the risk of intellectual property theft, limitations on launching their own products, lack of control over product quality, and the absence of income guarantees.
Licensing for designers – the ultimate business success
For many creatives, licensing is the ultimate business goal. You create something and other companies license it to create and sell products with your brand logo and aesthetics.
Licensing your brand can create passive or semi-passive income, but as with many elements of business, you’ll need to put in some work upfront to make it work.
I personally did quite a few licensing deals for my home decor brand, and they were all very successful brand builders. My clients often establish partnerships with exciting brands, and sometimes they are in different industries. Example: a client of mine is an artist, and she did a licensing deal with one of the biggest fashion houses in Europe. That’s an amazing way to increase her visibility and reach to new markets, and contributed a great deal to her becoming an influencer in her niche!
What is licensing?
Licensing means that you provide your intellectual property, your brand, to be used by other parties, who pay a license fee to use it.
Licensing is defined as a business arrangement, wherein a company authorizes another company by issuing a license to temporarily access its intellectual property rights, i.e. manufacturing process, brand name, copyright, trademark, patent, technology, trade secret, etc. for adequate consideration and under specified conditions.Source
Another key role licensing has is to introduce a domestic brand overseas. For example, if you have a local showroom or store, you could license it to companies that want to launch the same store, using your trademarks, in their own markets.
This would mean that the domestic company (your company if you are the license owner) issues the license to the foreign company to use the manufacturing process trademark, patent, and name of the domestic company while facilitating the sales.
In licensing, compared to franchising, the domestic company has less control over the licensee.
What are the roles in licensing?
The party providing the intellectual property is called the licensor while the party receiving the intellectual property is called the licensee. In a licensing agreement, the licensee typically pays an upfront fee in conjunction with a royalty fee.
The one who buys the license to use the brand. For example, a furniture manufacturer is a licensee if they want to use a celebrity interior designer’s brand to launch and promote a namesake furniture collection.
The one who owns the intellectual property, i.e. the celebrity interior designer (or any other intellectual property owner).
How to get a licensing deal?
The first thing you need to know about licensing is that it’s not easy to get the deals. You need to ask yourself: “Why would anyone want to use my name on their products?”
To be able to answer that, you need to get clarity on your brand and vision for the future. When you start dreaming about licensing deals, the first thing you focus on is your brand. You must have a strong brand and a strong follower base to be considered a licensor.
- What kind of products would you like to launch?
- What would be a great fit for your brand and current business?
Often the perfect fit is a product type that you use in your design work continuously, For example, if you are known to create beautiful layered spaces using lots of textiles with natural materials, then a textiles collection could be the right choice for you.
Would you like to create a DTC collection or a trade-only collection?
Different manufacturers specialize in different target audiences and sales channels, so setting intentions at this stage is critical.
How much time will you be able to invest in the collection process and launch?
It will take far more time than you might think, from the initial discussions to agreements and logistical setup to developing the collection, and further to marketing, PR, and sales events. You need to invest time, and often money too, to make a successful collection.
Who can handle the day-to-day of your design firm while you are busy creating your licensing collection?
This, of course, requires you to have the right systems and operations in place for your interior design firm, so it can continue serving your clients and growing without you running all the operations.
Who would be your perfect Licensing partner?
Do you already have established connections with furniture and decor manufacturers that you’d love to design a collection for? If yes, do you see the opportunity with them?
Have they partnered up with designers in the past?
If yes, then they most likely have the processes dialed in, which will make your launch easier. If not, do you trust them to be a great partner for your collection?
Do they have the necessary sales channels and visibility structures in place that you need to sell your products? And, do their values align with your values? Do they offer the quality that you want to be aligned with your products and brand?
Do you trust them?
Finally, do you trust them? Are they invested and engaged in making your collection a success both of you, or are they primarily interested in making a quick profit?
Licensing is a partnership and you need to establish a trust to make it work for both parties.
What kind of licensing deals can you create?
There are many different types of deals, here are some of the different types you can explore:
- License your brand to a manufacturer and co-create a product line
- License your brand to a ready-made product and establish an endorsement deal. Read more about becoming a brand ambassador.
You can also create exclusive or non-exclusive deals. Keep in mind that every industry that deals with designs, from textiles, and furniture to paper goods, has slightly different languages for their licensing deals.
The non-exclusive deals mean that the licensee does not own the exclusive rights to use the license, but other manufacturers might also be able to use the license to create products, of course, once they establish a licensing agreement with the licensor.
There might also be exclusivity that is regulated by a certain market or time frame, such as a set number of years. After the decided time frame, that same design can now be used by other players in the industry.
Are licensing deals profitable?
Licensing deals can be highly profitable, but more often they are not. If you own the IP for Walt Disney, then your licensing deals are most likely highly profitable for you, but if you are a mall business, for example, an interior designer, who has a solid brand but is not as globally known as Nike, Apple, or Disney, then licensing is most likely not a hugely profitable revenue stream in and of itself.
However, there are many other benefits!
The benefits of licensing your brand to create a product collection
There are a number of benefits of licensing to create a product collection. Here are a few:
No need to deal with manufacturing, logistics, stock, distribution, or sales
One of the main benefits is that you don’t have to deal with the product manufacturing side of your business. If you’re launching a product line, a lot of time and money will go into manufacturing.
First, you need to locate the best manufacturing partners for your business, establish relationships with them, and then start the sampling, and finally the manufacturing process. You need to deal with logistics, warehousing, selling, returns, and so on. This is a lot of work.
Then again, if you decide to take the licensing avenue, your manufacturing partner usually has the infrastructure in place. They might own their production facilities, and hopefully, have been in business for many years, and have established connections with retail and consumer buyers.
So the main benefit is the possibility to earn royalties without investing money into the production or distribution of the goods.
Expand your brand overseas
As discussed earlier, licensing enables you to expand into foreign territories without added tariffs or the hassles and stress of building relationships with retail outlets or distributors overseas. This is particularly true if you want to open a brick’n’mortar store in a foreign territory – you can allow your local partners to use your license to open and run the business.
Many times, design firms are local or national. Expanding to become an international firm with many locations is very expansive, and requires a completely different management style and structure than a local firm.
Build a strong brand
The main benefit for a designer who’s looking to become a household name is the possibility to build a strong brand through licensing partnerships. If you choose a licensing partner with a great reach and reputation, your brand will also be on top of customers’ minds in no time!
What are the disadvantages of licensing?
Of course, just like in business in general, licensing your brand has some potential disadvantages that you should watch out for.
- You might risk intellectual property theft. Make sure your agreements are solid as a rock, and always, ALWAYS, have your own legal team to draft and approve all contracts.
- You might lose on some great opportunities if you have created exclusivity deals. You also might not be able to launch your OEM collection in the same market.
- You can’t control the quality of your products. If your manufacturer is not keeping an eye on the quality of your products, or if they, for example, use child labor in their factories, this will harm your brand even if you don’t have control over it.
- There’s no guarantee of income. Even if your licensing partner promises a lot of sales, there’s no guarantee that your collection actually sells.
- You lose some of the control of your brand: If you don’t have specific and strict licensing requirements, and you don’t take time to enforce them by keeping an eye on companies licensing your brand, your brand’s reputation could suffer.
Do you have to invest money into marketing?
Honestly, a 100% yes. To get a licensing deal requires you to already be a celebrity at some level. While you don’t need to be the size of JLO or Kardashians to be able to get amazing deals, you need to have a name in your industry.
Licensing partners are looking to leverage your reach, it must be a win-win for all parties.
Lastly – should you license your brand to create a collection?
I personally recommend you explore this option, because it’s a great way to expand your business and increase your bottom line.
However, you always need to build a strong brand, so taking the steps toward becoming a known and successful brand in your industry is important, and once you have gained certain momentum, new doors will open for you to decide the next steps in your growth journey!