Years ago when I was writing Cause Marketing for Dummies, Joanna and I had to write a short section on product licensing. I remember being hesitant to write about it because unlike just about every other topic in the book, neither of us had any experience with product licensing agreements. I always thought of it as an area of opportunity for only the biggest and best known cause brands. Joanna and I advised caution.
My early opinion on product licensing persisted until I met Rachel Leber, the owner of Be Well Brands (BeWellBrands.com) a cause marketing licensing agency. Rachel explained that a lot had changed so I recently sat down with her to discuss product licensing, how it works and which nonprofits are the best fit for licensing agreements.
The conversation changed my opinion on licensing and I'm excited to share an interview with Rachel to help you decide if your nonprofit should pursue product licensing agreements. Enjoy!
If you have questions or comments for Rachel, visit the comments section at the bottom of the post.
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Q. What is product licensing?
A. Product licensing is a legal agreement where a nonprofit grants a manufacturer the rights to use the charity's intellectual property/brand on merchandise, in exchange for a payment. Four well known nonprofits that are leading the way on product licensing include the Product RED, ASPCA and FEED.
Q. What do you mean when you say "intellectual property"?
A. This is a nonprofit’s company name, logos and any additional marks that followers associate with your charity.
Q. Why would manufacturers want to work with my nonprofit brand?
A. Manufacturers are competing for shelf space and need to offer fresh product lines to their existing retail accounts. Providing new branded lines is a great way for a manufacturer to stay relevant. And by choosing a brand that has a strong following, the manufacturer is betting on success.
Q. Ok. So that explains the interest from manufacturers. But what about retailers? Why would they be interested in my brand?
A. In today’s landscape, many retailers are vying for the attention of the Millennial consumer while looking for opportunities to drive new customers into stores. For retailers, it’s important to offer and be associated with brands and causes that their customers also support.
Q. Why should nonprofits consider licensing?
A. The top benefits to creating a licensed merchandise program are income and exposure. For every licensed product sold, the manufacturer pays a royalty to the nonprofit and - depending on the scope sold into retail - could generate a significant revenue stream. Maybe even more impactful than the dollars earned is the national exposure the charity garners that can help build a larger following of supporters.
Q. What is a royalty?
A. The royalty is calculated as a percentage of the wholesale sales and can be paid out in cash or product donations. For example, assuming a 14% royalty rate, based on a $100,000 purchase order, the royalties due to the nonprofit would be $14,000.
Q. Come on, Rachel. Isn't licensing just for big nonprofits with well established brands?
A. Licensing is for any nonprofit with a strong mission and following, regardless of size. Smaller nonprofits with limited staffing and resources, may choose to use a licensing agent to represent their brand and direct the initiative on their behalf.
Q. How does a nonprofit know when they are ready for licensing?
A. A nonprofit is poised for licensing if it has a passionate supporter base, a natural connection to product or a strong brand identity.
Q. How long does it take to launch a licensing program?
A. From product design to retail shelf, the product development lifecycle is generally 12-18 months. Some items (e.g. tees) may not take so long depending on the manufacturer and retail account but overall nonprofits should expect a minimum of one year before the product is available.
Q. How does a nonprofit get started with this process?
A. Two steps. First, it’s important to start with identifying a natural product extension of the nonprofits’ brand that followers can easily identify with (i.e. ‘Homeless Charity’ creates bedding, blankets, gloves, etc.). Second, you should work with a manufacturer that is an industry expert with placement at targeted retail accounts. A licensing agent can bring additional expertise to the process by identifying a product design and distribution strategy, as well as negotiating strong merchandise agreements on your behalf.
Q. But how much does working with a licensing agency cost?
The licensing agency receives a percentage of the royalties earned. In other words, I only get paid when you do!
Q. Why do I need to license my rights? Can't I just create my own online store?
A. Good question! The ease of having your own online store has its many advantages including quick setup and a direct target to your existing donors. A license agreement allows the nonprofit to work directly with manufacturers who are product category experts. By combining their knowledge and retail relationships with the charity’s passionate supporters, manufacturers are poised to create an ongoing campaign that garners the attention of a broader customer base thereby driving incremental revenue and broader awareness.
Q. What are expectations for involvement?
A. It’s important for the nonprofit to oversee the licensed program to protect their brand integrity; namely by providing directive on brand usage (i.e. product and/or packaging). They should also be prepared to provide timely feedback throughout the product approval process and assist with marketing initiatives that drive customers to purchase.
Q. Ok, Rachel, bottom-line it for me. This sounds interesting, but what will it cost me?
A. Upfront costs can be minimized by leaning on the manufacturer's’ expertise in design, development and sales. I advise that nonprofits rely on their own legal resources to originate a formal relationship between the parties, in order to maintain control of their own company assets.