As an active participant in the “licensing industry,” I've seen a lot of change over the last few years. Celebrities have become licensors, retailers have become licensees and virtually every market has become more competitive.

Something that hasn't changed for many licensors is the emphasis on royalty revenue.

For years, licensing has been used as strategy to generate revenue from established trademarks or brands. Indeed, royalty revenue remains the primary motivation for many licensors. That's too bad, because royalties can represent only a fraction of the value that is created by a thoughtful, carefully executed licensing program.

The emphasis on royalty revenue over marketing value is backward. Focusing on royalty revenue is a common mistake because many licensors do not have a formal methodology to measure the brand benefits generated by licensed products.

What's the Real Value of Licensing?

Does licensing offer more than just royalty revenue for licensors? What do Coca-Cola, GE and McDonalds really gain by licensing their valuable trademarks into products such as glassware, toasters and beach towels?

It is true that royalty revenue is often a primary focus, but it's not always the most important objective of the licensor. Consider the following.

Coca-Cola has one of the largest trademark licensing programs in the world. According to the company, more than 300 licensees sell over $ 1 billion of licensed products each year. If we apply a conservative royalty rate of 7%, that means the company receives about $70 million in royalties, which is equivalent to 0.3 % of net operating revenues.

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ABOUT THE AUTHOR

Kirk Martensen is president of Goldmarks Company. Contact him at 773-334-7800 or kirkm@goldmarks.net.