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6 Things You Need to Know In Order to License Your Product

by: Geoff Ficke

6 Things You Need to Know In Order to License Your Product 

My Marketing Consulting, Branding and Product Development firm receives numerous queries on Licensing Consumer Products, Services and Concepts every week. Most inquiries are of no value as the hopeful Licensor has not organized proper due diligence that potential Licensees will require. The following are 6 Points to address before attempting to present a License opportunity

  1. Who is the Competition? 

You need to know your market category backward and forward, inside and out. Who are the biggest competitors your Gourmet Marinade or Mascara, or Wellness Product will be fighting for shelf space, display and sales promotional slots? Who are the hottest competitors? What is the current market pricing model? Potential Licensees will know the answers to these questions and many more. A Licensor had better know them as well. 

2.    How will the Idea/Product be executed? 

You will need to know the Logistic, Tooling, Manufacturing, Lead times, Production Limitations (if any), suggested optimal Marketing Strategy, Pricing and Sales Models that support the Licensing effort. Make it easy for potential Licensees to decide in your favor by covering all of the bases. 

3.    What is the Unique Selling Proposition inherent in your product? 

The market does not need another Pet Product, Car Wax, Aromatherapy, Juvenile Product, etc. unless the item has a Unique Selling Proposition (USP). This identifies your special product niche, its point of difference from competition. This is a crucial element for Licensees to be able to quickly see, understand and value. 

4.    What is the size of the Market?

Conduct proper Demographic and Market Research to learn the latest data on the size of the market you are seeking to address with your License opportunity. There are 74 million licensed dogs in the United States alone. This is important if you are attempting to sell a Pet Product or Accessory. The Baby Food market was $5.5 Billion in 2009, crucial if you are trying to make a deal on a Baby Consumable Product.

Having command of this type of knowledge stamps you as a professional in the eyes of the target licensee.

5.    Who are the Prime Licensee Targets of Opportunity? 

What are the four best targets of opportunity for you to approach with a Licensing offering? Some Companies are public about their Open Invitation search for outside product opportunities. Others are very fearful of litigation and difficult to penetrate with an offer. 

I always look at mid-level size targets first. These Companies are a bit faster on their feet and can make more facile decisions. They have resources and have not yet become bureaucratically bloated. 

6.    What is the sales potential for your product?

This requires the construction of a conservative Sales Model and requires a bit of research in order to assemble data that will withstand scrutiny.

Let’s assume you have developed a Fashion Accessory product. Your research indicates that there are 80,000 potential sales outlets for the product in the United States alone. The following is a hypothetical example of Sales Potential for this fictitious Fashion Accessory:

Unit Sell-in           =  60 pieces per door  — 12 pieces of 5 styles/colors

Wholesale                $10.00

Total per door         $600.00

Stock Turn                  4 X’s 

Total Yr. Sales          $2400 annual wholesale per door 

Size of Universe       80,000 doors

Penetration               1,600 doors   2% year one, to 4% yr. 2, 6% yr. 3, etc. 

Total 1st year Sales = $3,840,000 

Obviously the variables move wildly based on market research for each category. If you conduct this work with diligence, and base assumptions on verifiable, historic realities this will confirm that your License offer is valuable, serious and being presented by professionals. 

The biggest mistake we see aspiring Licensors make is to think that they can sell an un-vetted idea. There is simply no room in this super-competitive market for those that take shortcuts. Do not waste your time unless you are prepared to provide a professional package that will interest and excite target Licensees about the unique Features and Benefits of your Consumer Product. Each of these 6 points is equally important when seeking Investment, Venture Capital or Strategic Alliance consideration.