From Royalties to FOBs: demystifying the jargon in brand licensing
Whether you’ve been involved in brand licensing programmes for years or are entering that world for the first time, it’s highly likely you frequently stumble across a few acronyms and phrases that require you to pull out your phone and google. It’s fair to say that the language can be quite confusing but we’re here to provide clarity. After all, if you can’t understand the licensing lingo, how can you see its full potential?
Licensing a brand well is tricky, and with it, comes a sea of terms that, for many, sound confusing and inaccessible. A bit like when economists talk about diminishing returns, or Triple A bonds (seriously, help us out here).
Here’s our run through of the most common brand licensing terms and what they mean.
The Licensor is the brand owner i.e. the company or individual who owns a brand/mark and the rights to use such marks (images, logos, names, voices etc).
The Licensee is the manufacturer who has been given permission by the licensor to use its brand in the development, manufacture, marketing and sales of a Licensed Product.
Royalties are the pre-agreed rate that the licensee pays the brand owner for use of the brand on products. Brand licensing agencies draw up contracts for both parties and royalties are negotiated as the contract is being drawn up.
DM stands for deal memo which contains the initial terms for a licensing contract. It is a short, informal document that sets out the business relationship between the licensor and licensee before the formal contract is signed.
MG is the minimum guarantee or the minimum number a licensee guarantees to pay the licensor as part of the programme. For example, a standard minimum guarantee is 50% of the projected sales for a given period.
Typically paid upon the signing of the contract, advances are an initial “guaranteed” payment by a licensee to a licensor.
- Direct to Retail
Licensing agreements take on many forms: direct to retail is an arrangement between the programme partners to produce a range exclusively for that retailer.
You’ve probably seen them at your local Tescos. FSDUs are free standing display units which are just display stands that are used in stores to display certain products. When the last Harry Potter movie came out, FSDUs were used (a big stand with the move poster printed on it) to promote Harry Potter merchandise. FSDUs are one of the many ways for the licensor to boost the brand of the licensee.
Similar to FSDUs, CDUs or Counter Display Units are brand-associated display units that are typically found at the till of the retailer associated with the license. These stands are eye-catching and can sometimes be a last-minute purchase for customers standing at the till.
PPS stands for pre-production sample which is, a sample of the finished product that is tested ahead of full production. It’s a way for the licensor to approve the product and negotiate any changes. Pre-Production Samples are essential because licensees require the approval of the licensor in order to use its logo, title, illustration, name etc.
- Contractual Samples/ Production Sample
Contractual samples/Production samples are samples that are taken from the first production run. This takes place after the pre-production sample has been negotiated and finalised. The production sample is tested to make sure there is no issue with the machines and that the product comes out well.
The FOB or Freight on Board – is the location where the retailer takes ownership of the Licensed Products. It is also the way in which shipping costs are calculated. For example, FOB Italy means that a Licensee is selling Licensed Products to a retailer who takes stock of the products in Italy. Licensors typically charge higher Royalty Rates for licensed products that are FOB outside the country of origin.
- Flat Artwork
Flat Artwork is the artwork that is used for manufacturing companies. For example, Shuttershock provides stock images in HD (i.e. flat artwork) that is royalty-free when used.
A licensed products’ NSV (net sales value) is the money the licensee takes in from selling it, minus the value of returns, volume discounts and discounts for damaged merchandise. The profit, on the other hand, is the final value, including the subtracted cost of making or acquiring the product (including labour and machine costs).
Product development (PD) is all the stages involved in bringing a product from concept to creation, with marketing. In licensing agreements, product development involves a negotiation and constant communication between brand and manufacturer.
- New Product Development
New Product Development involves the same process but involves products that the licensee/licensor has never made or sold before or involves innovations to existing products on the market.
QC stands for Quality Control put in place by the licensor to control and monitor the quality of the licensed good provided by the licensee.
- Style Guide
A style guide is essentially a manual book with instruction on how to use the brand assets (typography, colour pallets, corporate identity etc) on a licensed product. It is produced by licensors and provides information on the creative direction to guide licensees in the development of products, It Is much more than a Brand Guidelines and Is essential for more licensors to have when embarking on their licensing journey.
Assets are a collection of artwork owned by the licensee (the brand) that helped customers identify their product with the brand. These are then Included In the Style Guide.
We hope we have cleared up some confusing, misleading and strange terms. Let us know what we have missed, and which “jargon” you need explaining! Drop us an email or comment below.