The concept of minimum guarantee approaches in brand licensing often resembles some complex form of art. Typically, a minimum guarantee total and installments are based on the forecasted sales of licensed products. However, often licensees find it challenging to estimate the sales through rate during the negotiation phase since it depends on such intangible metrics as, e.g., brand’s awareness within the target market. Yet, licensing stakeholders can resort to certain useful practices during the negotiation of minimum guarantee amounts.
Here a few most important of them.
To estimate the minimum guarantee licensor needs to analyze the licensee’s estimated sales, validating that their manufacturing and distribution capabilities are sufficient to achieve the expected results. If the licensor fears assigning resources to a seemingly risky deal, they will undertake security measures to assure minimum income and lower the risks. From the licensee’s perspective, the more straightforward the minimum guarantee approach, the better the execution process. If the negotiated minimum guarantee amount seems high, the following practices might help:
Securing minimum guarantees is a vital topic in partner negotiation, especially from the licensor’s point of view. Ideally, licensee should fully recoup the agreed amount and report overages for a certain period of time. Nonetheless, licensors should consider the risks of incomplete guarantee recoupment. From their perspective, the licensee must recoup the guarantee in all granted territories and categories. This is particularly important if the licensor reserves specific categories or territories to licensee. So in case of "inactive" sales, the failure to correctly recoup the minimum guarantee translates to missed opportunities, especially for the licensor.
The following are a few ways to handle this issue:
All things considered, it’s crucial for licensing partners to keep the minimum guarantee matter under control. Poor monitoring of the incoming figures or lack thereof can undermine the progress of a brand’s licensing activity. Most importantly, not paying attention to minimum guarantees might lead to partnership discord and profit losses for all parties. Yet, there isn’t a situation where licensing partners should give up on activating the brand to ensure success in licensing. Licensor has several plan B options in case their licensee fails to meet the agreed minimum guarantee.
Minimum guarantee approaches aren't that difficult to figure out, provided that licensing partners understand their fundamentals. The final decision on the minimum guarantee amount should reflect the common goals of partners in the licensing journey. Similarly, both partners must consider the possibility of implementing security measures to ensure the financial success of their licensing program.