3 things you need to know about how art licensing works

When I started my business, I only had a vague idea of what licensing was and how it worked. When I would see other artists get licensing deals with big dreamy retail stores, I would think to myself, “How can I do that?”

But before I could understand how to do it, I needed first to know what it was and what I was getting myself into.

In this quick-start post, I’ll break down the main components of licensing, so you can decide if it’s a path you’d like to pursue.

What is licensing?

First let’s start with what the term licensing means. Licensing is when you (the Licensor) give another company/person (AKA the Licensee), the right to use your art for commercial purposes for a fee (in exchange for money).

For example, I had a licensing deal with a ceramic company that partnered with Wegmans. Through a licensing contract, I gave them permission to use my art to produce a collection of mugs from my artwork that they could sell in store.

This involves handing over high resolution files of your artwork, and that’s something that you have to be comfortable doing if you want to license your art.

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Side note: I know some artist are hesitant about this because you’re files are basically your golden goose. They allow you to diversify your business beyond just licensing.

My best advice here, is to be picky about who you give licenses to. You shouldn’t hand over your files to just anyone. Not every offer is worthy. That’s definitely another topic for another day, but if you need more guidance on how to discern if an opportunity is right for you, check out this post.

Ok, end of sidenote. Back to the basics of licensing.

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How you make money

There are a few different ways you can make money from licensing. There are royalties, fees, and an advance against royalties

Royalties

A royalty is when you get paid a percentage of each net sale your licensee makes. The net amount is the sale price minus expenses and discounts. Royalties are my favorite because they are what makes passive income possible. 

The amount you’ll get from each sale will depend on the type of product, or industry standard. For instance, greeting cards usually  have a percentage of 2-5%, whereas art prints can have a range of 10-40% .

Royalties are usually paid either monthly or quarterly, or on a different pre-arranged schedule.

Fees

Fees are a one-time payment for the entire project. This is all the money you're gonna get.

Though this isn’t necessarily a bad thing, in some cases, as I previously mentioned with hospitality licensing, you will receive a flat fee for each print made from your artwork. So if they license 1 image for 100 hotel rooms, you would multiply your licensing rate by 100. Ex: $100 rate per print x 100 = $10,000.

Advance against royalties

Advance against royalties is the top-tier choice if you’re working on a project that’s going to take a long time to generate royalties.

It’s a combination of a fee and royalties.

You will get paid a flat fee up front, before your product goes into production. Then once the licensee starts selling the product and your accumulated royalties surpass the flat fee paid, you’ll start to get royalties paid out regularly, either until the product sells out of the contract expires.

Going back to my Wegman’s example, we signed a contract about a year before the mugs finally hit the shelves and then I had to wait another 6 months to get my first royalty check. So with this option you get some money now, and more money later — win-win!

An overview of contracts

Contracts are what legally bind you and the licensee together. 

They are the aspect that I like the least, but a good contract will protect both parties. They should clearly outline:

• How the artwork will be used > printed on mugs, blankets, etc.
• For how long > a 2-year term, until someone terminates the contract, until sold out, etc.
• If it’s an exclusive design > meaning no one else can use this either forever and ever or temporarily.
• What the payment terms are > which we went over in the section above
• What the payment schedule is > monthly, quarterly, or other
• Who gets the copyrights > which should always be you
• Other legal stuff like arbitration and termination.
  

In my experience, contracts for product licensing are more complicated than a contract to license art for a hotel. Product licensing contracts are usually written with full-blown legalese, and at times can be hard to understand. Whereas contracts for a hotel project are written in plain everyday speak. It's always best to consult with a legal professional, if you're ever unsure about what something means.

Your workload

This will vary depending on the licensing path you ultimately take, but in my experience, a common thread is that there is a lot of back-and-forth communication between you and the licensee— such as starting a project, staying in touch during a collaboration, answering questions about the art, and finalizing a project.

Therefore, a lot of your work will look like creating art, signing new clients, and interacting with existing clients.

Alright, so there we have it— the basic structure of licensing!

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