Licensing is most often used to generate revenue from IP by partnering with companies who pay you royalties. But that’s only one way of creating money from licensing your intellectual property.
Licensing puts your IP to work in many ways. It not only generates revenue, it also creates other forms of money and value. Some of these include reducing development and marketing expenses, increasing its market value, and reducing expensive market and liability risks.
In this article, I’ll cover three of the ways licensing creates money.
1. Recurring Revenues: Licensing generates more than just a sale. It generates one of the most lucrative and profitable forms of revenues – recurring revenues. This is the type of revenue you only sell once to get paid over and over. And in many cases, it’s from more than one licensing partner.
The best part about recurring revenue is there’s is very little if any cost to create it. It’s generated by your licensing partners who sell your IP in the form of products and services. One of the best examples is a big kids movies. Some of these develop licensing programs with dozens of companies with a hundred or more different products, paying royalties on sales every quarter. And that generates big profits with little or no cost.
2. Resource Multiplier: Licensing let’s you tap your partners resources, whether its manufacturing, distribution, sales or selling internationally. Rather than spending the time, money and resources trying to build that part of your business, you plug into their resources.
For example, to get a lower cost on production, you license a bigger company, give them rights to the mass market, and as part of the deal, you get their best production price. Now you can focus on your core market with better pricing and higher profit margins.
3. Builds Value: Unlike hard/tangible assets, such as machinery and equipment, which depreciate over time, your IP value appreciates over time as you invest more into it commercial development.
Keep in mind, IP in and of itself isn’t valuable. No matter what kind of intellectual property you own, there are certain actions you must take to create value. In the case of licensing, it’s what you are doing to unlock the value by turning it into tangible products, services or technologies.
Licensing is like buying and selling real estate. Like real estate, it leverages the equity “value” of IP. However, instead of encumbering it with debt, IP value builds every time it’s used in the marketplace. But unlike real estate (which can only be used by one renter), IP is an abundant property that can be licensed and used by many partners simultaneously. And that’s what creates big value for your IP.
These are just three of the ways that licensing creates “money”. But they aren’t the only ways. In today’s market, there’s more licensing opportunities available and more ways to use licensing to create money than at anytime before.