6 Questions to Ask Before Licensing Someone Else's Name

Licensing a well-known name can transform a business — or quietly drain it. Here are six questions to ask and answer to help you know whether licensing someone else's name will actually benefit you. (We'll use "Joe's" as an example throughout.)

1. Is the name better known to your prospective audience than yours?

Not the audience you already have — the one you want, including people who might be traveling to your city. The point of licensing is to attract customers who may not have come to "Joe's." While your existing customers may come more often or spend more if you change your name and image, the prime focus is on new customers who, when asked which name is more familiar, say the license name.

2. Would that name actually make them want to visit?

Having a well-known name is one thing, but it's unlikely any business would want to rename itself "Enron" just because it's well-known. Do your prospective customers have an image of the licensed name that would make them choose it over "Joe's"? It's the same question a hamburger shop asks when deciding whether to keep "Joe's Burgers" or get a McDonald's franchise. Some people choose "Joe's Burgers" to be different — but most people unfamiliar with it would choose McDonald's.

3. Is the name and its image consistent with your establishment — or will you have to change?

Sometimes your goal is to add to your existing customer base; other times it's to change your audience entirely. Just consider: if "Joe's" customers are used to budget prices, repositioning as an upscale, higher-priced establishment will likely alienate them. In that case you'll essentially be starting from scratch, and the licensed name could be critical to avoiding a slow start. Also consider whether the new style of business is consistent with what you are comfortable with personally.

4. Will the licensor actually help you — marketing, promotion, product?

There are always trade-offs and costs. But if you're paying roughly the same for two different names, the more valuable name is the one that results in more business and profits — a combination of pure star power plus everything that goes with it: advertising, coordinated events, product support, cost reduction, and more. Is it necessary to get all of this? No. But if you want your money's worth and the best chance of success, ask your licensor what they'll do for you besides lend a name.

5. Does the licensor take licensing (and you) seriously?

A successful licensing experience starts with the licensor, not the licensee. A good licensor gives extensive thought and planning to how their name can help you, and knows how to listen to your goals. They want their licensees to succeed and accept a licensee only if there's a good chance of success. A bad licensor just wants anyone who will pay a fee. What does your licensor want?

6. Do you make more money with the license than without it?

Sometimes being a licensee within a larger network provides cooperative efforts, support, and intangible benefits. But ultimately, the level of profits is still the biggest factor. Excluding any cost savings your licensor helps you achieve, here's the formula to determine the percentage your revenues must increase just to break even on the royalty:

So in this example, if you believe you can realize an increase in revenues of more than 6.67%, that's why you might want the license.