How and When to Discuss Money in a Licensing Deal

Money is one of the most important—and tricky—parts of any licensing deal. You need to ensure you are getting paid what your product or service is worth, but you don’t want to price yourself out of a good deal.

So, when is the best time to discuss money? And how can you make sure that you are getting compensated fairly?

The answer to both of these questions is: after you have agreed on all the other deal points. Once you have a solid understanding of what the other party is looking for and what they are willing to provide in return, you can start negotiating the deal’s financial aspects.

There are a few things that you will need to keep in mind when negotiating payment, including:

• The value of your product or service. Ensure you understand what your product or service is worth, and don’t be afraid to ask for what you think it’s worth. Remember, though, that the other party likely has a budget that they are working within, so be realistic in your expectations.

• The payment schedule. Many licensing deals are structured so the licensor receives an upfront payment followed by royalties based on sales or other metrics. Ensure you understand the payment schedule and that it fits your business goals. For example, an upfront payment may be more important than royalties if looking for immediate income.

• The rights being licensed. The more valuable the rights (such as exclusivity) being licensed, the more money you should expect to receive. Be clear about the rights included in the deal and ensure they match your expectations.

Licensing deals can be complicated, but money is one of the most important—and tricky—parts. You need to make sure that you understand the value of your product or service and don’t be afraid to ask for what it’s worth. However, it’s also important to be realistic in your expectations and understand the budget constraints of the other party. By keeping these things in mind, you can ensure that you reach a fair agreement on compensation.

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