Successful small business owners often find themselves at a crossroads: Invest capital and grow, or forgo investment and stay small. Many owners choose the latter because they are afraid of risk, afraid of the cost, and afraid of the time it will take to grow their business. For many businesses selling a product or service, licensing offers a way to manage risk and reduce capital and time investments by including other businesses in distribution. In the second part of our “franchising and licensing” series, we will explain the basics of licensing, and how it can be used to effectively grow your business beyond your current capabilities.
What is licensing?
Much like a driver’s license gives an owner permission to operate a vehicle, when you provide a license you give other businesses permission to use your product or service in return for a fee. This could include the opportunity for another company to use your patents, trademarks, copyrights, designs or trade secrets. These opportunities would be paid for through a flat rate, a percentage of sales, or a combination of the two. By offering a non-exclusive license, interested entrepreneurs can pay the rate requested and obtain access to your licensed collateral. A great example of this is Microsoft Office: when a business decides to use Microsoft office, they do not buy the suite but rather agree to the terms requested by Microsoft and purchase a license to use the software. Millions of people use Microsoft Office, but Microsoft retains ownership of the actual product. Your products and services can be distributed the same way.
Why should I consider licensing?
Licensing is most successful for businesses with a unique product or business model that has been proven successful in a smaller market. When you license all or parts of your business, you expand your market quickly with very little or no capital investment. You don’t need to set up additional retail or service space, they are provided by your licensee. The licensee will be motivated to market and sell your product or service because they will be making money on sales—and so will you. If you ask for an upfront cash payment as well as ongoing fees to maintain the license, you can have recurring revenue that will stabilize the financial health of your company. And because you retain ownership of your product or service, you can still have a great deal of control over the quality and distribution of your brand.
How do I license my product or service?
First, you need to decide what exactly you plan to license, and what the terms of that license will be. You need to decide if there will be an upfront cost, subscription costs, royalties, or a mixture of these. You will want to make sure these are clearly stated in your licensing agreement to avoid surprises later. Next, you will need to introduce your product or service to people that will want to purchase them. Without knowledge of your business, no one will be interested in what you are selling. Multiple marketing channels should be utilized for optimal growth.
To make this process simple, easy, and successful, it is beneficial to find a marketing group that has experience in licensing. These professionals can help with everything from building an online presence to creating an intranet for those that license your products to use. They can help you test various marketing channels and social media options to find the best and least expensive means for acquiring new business and selling more licenses. They can also help you add value to your product to increase its impact, translating into more sales.
With the proper setup, support system and training, licensing can allow small companies to grow and scale quickly. At Diffactory, we have over 9 years of experience helping successful businesses grow through licensing. Are you ready to learn how licensing could radically change the growth rate of your business? Contact us today by clicking HERE or giving us a call at 816-287-2010.