Maximising the value of your brand
According to a study from the Licensing Industry Merchandisers’ Association (LIMA), retail sales of licensed products totalled an estimated $13.4 billion in global royalty revenues and $241.5 billion in retail sales in 2014 - clearly demonstrating licensing as a powerful marketing and retail force. For many organisations, brand represents a significant part of their value and needs to be protected.
Though there are risks that accompany licensing, there are ways to minimise their impact. We review some key strategies to ensure you maximise the value of your brand.
Licensee monitoring programmes
One of the best ways to minimise risk of breach of licensing contract or brand misappropriation is to put an ongoing licensee monitoring programme in place. Such programmes will monitor the way your brand is being used in every format from social content to merchandise and will help identify any red flags early on.
It is important you engage a firm that understands the industry and the delicate nature of your relationship with your licensees – so that you can maintain the fine line between trust and control. You need an adviser that appreciates the ongoing nature of your relationships with your licensees, and will engage with you from the outset – before you sign on the dotted line and when you are re-negotiating.
Monitoring your licenses on an on-going “business as usual” basis is good best-practice that signals to the licensee that you are serious about your brand and can act as a deterrent to abuse of licence. It also means that you can identify breaches early, helping to avoid unnecessary situations and potentially costly legal actions later down the line.
While regular monitoring is important, it is vital you engage an audit if you notice any of the following red flags:
- Lack of communications from licensee
- Lax or deficient reporting
- Revenue reported is not in line with your expectations or previous income periods
- The licensee is close to recouping its Minimum Guarantee
- If you have concerns about your licensee’s systems, staff changes or processes
Aside from the possibility of increased revenue for your business, additional benefits could include:
- Helping you identify improvements to contract clauses where terms are ambiguous; where contract language that has unintended consequences or has been interpreted by licensees over time, resulting in loss of revenue to the licensor
- Provides an insight into the licensee’s operating conditions
- Offers insights into how to improve your company’s own monitoring process
- Improves communication between you and the licensee
- Helps you spot unauthorised or damaging use of your property or brand including any penalties for sales outside the allowed region
- Highlights disallowable deductions
- Enables you to penalise late payments and ensure future compliance
It is worth initiating a “spot-check” audit with randomly selected licensees as good practice as it may identify issues that you were not aware of.
Top tips to help maximise your brand value
Aside from regular monitoring, spot checks and potential red flags, you should consider undertaking a royalty audit:
- when negotiating or re-negotiating a contract
- where your licences are far afield and it may be impractical/ expensive for you to visit them
- where there are language barriers/ cultural differences that make communication difficult
- where some of your existing contract terms are complex or open to interpretation
- to provide your senior management comfort around the robustness of your monitoring process
When undertaking an audit, make sure you check your contract terms carefully. If your contract terms allow and if your auditors find errors over the stipulated threshold, you may be able to recharge the cost of the audit to the licensee.
To find out more about how Grant Thornton UK can assist you protect and boost your brand, contact our dedicated Royalty Audit team.