There are a lot of terms that the licensing industry uses that might confuse you. Read through this to learn the terms or use it as a reference guide when you’re working through the lessons.
A manufacturer sells to stores. This is the company you will most often be licensing your art to. You’ve probably never heard the name of the manufacturer you might be working with because they’re behind-the-scenes. They don’t have a storefront and usually their logo isn’t even on the products when they get to the store. But they’re responsible for taking your art and printing it onto a product, as well as making sure that product looks good and getting that product into a store – also known as a retailer.
A retailer sells to customers. Sometimes you’ll work with retailers too. Typically you’ll work with the manufacturer, who will then sell the products to the retailer, but sometimes the retailer makes their own products so you would actually work directly with them. It’s similar to when you walk through the aisles at the grocery store and there’s the name brand (that’s a manufacturer) but there’s also the grocery store brand (that’s the retailer). A retailer has a storefront – sometimes a physical location, sometimes an online location, or sometimes both.
These might be the most confusing terms in the licensing world because they sound so similar. You’re the licensor, granting the license to the company. The retailer or manufacturer is the licensee, the person taking the license. However simple, it can be hard to remember, so try committing just the one to memory: I am a licensor. You’ll remember, and you’ll also be working on the mindset blocks that make you feel like you can’t do it.
A potential licensee might ask for your Style Guide, a term used in a lot of different ways in other industries. But in the licensing industry, a style guide is 10-12 pieces that go together. They don’t have to match or be part of a series, but they must either have a theme or an aesthetic vibe that’s consistent across all the pieces. You don’t necessarily need 10 pieces in order to start licensing because many companies don’t ask for a style guide and don’t want to license a lot of your work.
Before they pull in the lawyers to create a fancy contract, the company wants to get on the same page with you to make sure you’re both really into each other and this deal. So a deal memo is created. It’s a summation of the most important aspects of the deal that you are agreeing to. It’s a great opportunity to see problems before you get in too deep or to negotiate a bit to create the best deal for yourself.
Most art licensing deals include some sort of exclusivity, which means just what you think it does. They are the only one using your art in that way. But giving a company ”an exclusive” can be very broad or very narrow. It could be that they are the only one allowed to reproduce any of your art onto any substrate for 5 years. Or it could be that they are the only one allowed to reproduce one particular image onto plastic plates for 6 months.
Territories are locations. So when you ask a manufacturer what territory they distribute to, you’ll hear back whether they sell only in certain countries (or even particular regions) or if they sell worldwide.
The types of stores that sell a manufacturer’s products are their distribution channels. The answers can be confusing too, though. Mass Market is big, cheap stores like Wal-Mart; Lower Tier is big stores hitting the middle-class niche like Target; Mid Tier is department stores like Macy’s; Upper Tier is a high-end department store like Bloomingdales, and Specialty is niche stores like REI or small boutiques. You might hear other things too, but these are the most common.
The types of products your art can be printed on are typically called “markets”. So the markets you are granting the license for could be stationery, device cases, or fabric – or they could be very specific like bedding, calendars, or mugs.
The most common way to earn your paycheck in art licensing is a royalty structure. This means you earn a portion of either the revenue or the profit from the product. So you might set up a deal where you earn 10% of the profit from each sale of a $20 product. If their costs were $5, then you’d make $1.50 from every sale. This doesn’t sound like much (and the royalty rate is often lower) but when you’re working with a manufacturer they’re often selling tens of thousands of these products, so it adds up.
Usually if you are getting royalties, they’ll also give you an advance. This is a lump sum of money you get when the contract is signed since it takes some time between the contract being signed and the products actually being in the stores. So it’s meant to sustain you in the meantime while you wait for your royalty checks. Some advances are just extra cash for you, but most advances are ”against royalties”, meaning that if your advance is $2000 then the first $2000 you earn in royalties will not be paid and you’ll only start receiving royalty money after that.
The products created from the images you license to the manufacturer. You may be talking about “licensed articles” as if you’ve already signed the agreement even before the first draft has been written.
Here’s a printable cheatsheet for you:
(Click image to download pdf version.)