A healthy relationship with your licensing partners is important when licensing. After all, they are the ones who help you get your products out there to the masses. But how long a term should you give them to recoup their investment? We’ve got the answer.
There are a few factors to consider when determining how long your licensing partner should have to recoup their investment. The first is the type of product you’re licensing. If it’s a new product, it will take longer for them to get a return on their investment than an existing product with a customer base. Second, you need to consider the size of your partner’s company. A large company will likely have more resources and be able to recoup its investment quicker than a smaller company. Finally, you need to consider what kind of marketing support you will provide. The more support you can give, the quicker they’ll be able to see a return on their investment.
Now that we’ve considered some factors let’s give some general guidelines. Your partner should have 12-18 months to recoup their investment for a new product. For an existing product, they should have 6-12 months.
While I was at the studios, the average term for most licensing deals was about three years. It generally took about 12 – 18 months to produce the product and enter the retail market. If it was a movie, most sales were made before and after the movie opened. If it was a TV show, the term usually included at least two seasons for product sales at retail.
Bear in mind that these are general guidelines and may need to be adjusted based on the specific circumstances of your situation. For example, brand and copyright licenses will generally run about 3 – 5 years. A patent license typically runs the life of the patent.
Giving your licensing partner enough time to recoup their investment is important for maintaining a good relationship with them. It’s also important to remember that unforeseen issues can arise that prevent or slow your partner’s ability to get your IP into the market. In these cases, it’s important to be flexible in adjusting the duration to accommodate these circumstances. By considering these factors, you can give your licensing partner the best chance for success—and ensure continued royalty revenues down the line.