Licensing agreements are a lot like plants—they require constant attention and proper feeding to blossom. In licensing, that needed care is known as contract management—the processes and procedures that companies may put into effect to handle the negotiation, execution, performance, modification, and termination of contracts with a variety of partners including customers, vendors, distributors, contractors, and employees.
Some licensing professionals see contracts as a lawyer’s burden. However, it is imperative that brand owners and licensees familiarize themselves with their contracts and aid in their management. Contracts outline essential elements of the working relationship, provide definite answers, and will ultimately determine the success of your business agreement.
Below, find useful tips to help you manage your contracts like an expert.
Licensing agreements are the result of numerous conversations across phone calls, emails, and meetings. By collecting and consolidating all of the documents and notes that contributed to the final contract as well as the contract itself, you help to establish clear benchmarks and communication channels that will last for the duration of the partnership. To make organizing easier, invest in software that allows you to find and sort through contracts quickly and to share queries or successes with your internal and external teams.
No matter what side of the partnership you are on, it is helpful to review your contracts thoroughly. Ask yourself if the document includes clear benchmarks, performance measurements, expectations, and conditions. If it does not, you should consult your legal team and immediately address inconsistencies or compliance risks.
Paint the big picture
Licensing departments differ from company to company. Some licensing professionals sit within the legal arm of their company, while others are a part of the marketing team. At first glance that may seem like a formality, but understanding how your agreement fits into your partner’s big picture will help you to negotiate terms and royalties more efficiently. Does the finance team want to see specific numbers at the end of the deal? Does marketing want to see social media engagement grow? Knowing what the deal should look like at its end will help you manage it at the beginning.
Do you have direct access to all of the partners involved in your agreement? Are you in the same city? If not, how will meetings work? What about final product demonstrations? How accessible do you want to be to your partners? Compile a list of numbers, email addresses, and office locations for all stakeholders and communicate when and how partners can contact you.
If written contracts are the foundation of successful partnerships, strong communication and personal interactions are the layer just above that. Establishing clear communication channels will help you to build stronger relationships with your partners and will be especially handy during emergencies or production lags.
Figure out the finances
Nothing is more detrimental to a licensing agreement than the failure to define clear financial terms.To starts, both the brand owner and the manufacturer should work to understand their net sales. Pay attention to deductions and explain your calculation method.All licensing contracts should include information about returns, allowances, and discounts that are not subject to royalties.
Next, there should be firm guidelines on royalties. Royalties are calculated by multiplying your royalty rate by your net sales. The royalty rate is the percentage of net sales that will be paid by the licenses to the brand owners. All contacts should include regulations about minimum royalty payments—calculated based on the percentage of predicted net sales and royalties earned—as well as information about how royalties will be paid and processed.
Perform quality control tests
If you are a brand owner, you should conduct quality control checks on all final products. If a licensed product does not meet your standards—as outlined in your contract—you have the right to deem the item unfit for sale. Test protocols are standard in the industry. If none are provided, licensees should inquire about them to ensure that products will be approved quickly and to avoid wasting time and money.
Once you have created a workable management system, with useful tools and people, you cannot abandon it. Find time in your schedule to maintain your system, check in with key players, and make sure that each process is lining up according to the contract. Call on new team members or associates as needed to help your project grow over time.
Once you have accounted for the steps above, you’ll be on your way to contract management success.