When I was about a year in to my business, what I thought was a small trade publication featured one of my bracelets (the now best selling Capuchinas Bracelet). In a moment of serendipity, the people from the Frank Lloyd Wright Foundation saw it and immediately recognized the architectural approach I take to my work. They were looking for a new licensee in the jewelry category of their Frank Lloyd Wright product program. They called me, and we embarked on a path of negotiations that led to Pico holding the license to design and sell Frank Lloyd Wright™ jewelry for several years.
Fortunately, I had experience negotiating licensing contracts and was familiar with how a licensing deal is typically set up. During my time at Clodagh Design, I helped her licensing agent Keith Granet of Granet & Associates work on terms for similar contracts, including a licensed lighting collection with Visual Comfort, a furniture line with Boden, and others.
The license with the Frank Lloyd Wright Foundation allowed me to gain a ton of exposure that I otherwise would not have gotten on my own. This was something I knew going in to the deal.
So how did that deal work out for Pico, what is licensing, and what other alternative ways are there for jewelry designers (or any designer) to create new channels for sales?
- Licensing – product licensing is common across a range of categories. It’s used frequently in the interior design trade, as interior designers and architects often design custom furniture, lighting, and textiles for private clients and feel they have developed manufacturable ideas over their years of experience. While they have this design expertise, most of them are not set up to manufacture and market those designs. So they typically partner with another company with an already established manufacturing infrastructure. We don’t see this at retail, but most people in the interior design trade are very familiar with this setup. Sometimes, this does cross over to retail, an example being the Michael Graves for Target line, which was one of the first and most well known examples of an interior designer/architect licensing designs to a larger company.There are many other industries and product categories doing licensing, as well. (Think Star Wars Legos). So what is typical in a licensing deal?Royalty Rate. Usually, a person or a company has an idea or a patented invention, but does not have the resources, or desire, to produce, market and sell it. The licensor is the person with the idea or design, and they pair with a licensee, the person or company who is licensed to make it. The licensee pays the licensor a royalty, usually anywhere from 2%-8% of wholesale cost. That rate usually falls around 5%, a good royalty if you’re entering into a deal.
When I worked with the Frank Lloyd Wright Foundation (FLWF), even though I was the smaller company I had the resources and infrastructure to design and make the product. Therefore, I was the licensee and FLWF was the licensor. In my case, the FLWF was allowing me to use the Frank Lloyd Wright name to design and sell jewelry. I paid the foundation a royalty for both wholesale and direct to consumer (DTC) sales. The DTC rate was higher, since my margins were also higher. Royalties are typically paid quarterly and require detailed reporting.
Term. When a licensing contract is signed, both parties also agree to a term, or time period, in which the agreement is valid. The term can be anything but two to five years is typical. Anything less is not worth the time invested in setting up the partnership and anything more is a risk if the product doesn’t sell well.
Other. Some of the other considerations involve how much money the licensee agrees to spend on marketing. Sometimes this is a percentage of the projected sales. What this does is helps the licensor feel comfortable that the licensee is doing everything in their power to maximize the sales of the product. It’s in everyone’s best interest to sell as much product as possible.
In the case of my FLWF license, we had a two year term that we extended one or two times when the sales were high. Ultimately, we didn’t renew the license after several years because the majority of sales were wholesale and the royalty I paid to the foundation cut into my margins too much to sustain the project. But the exposure and experience were incredible and I would definitely do it again.
- Private label – Sometimes a company wants to add product to their assortment without calling attention to the fact that the product was designed or made by someone else. Why would a designer do this? Even if your designs are not branded, there are benefits to working in a private label situation. I was commissioned in 2016 by the Metropolitan Museum of Art to design a collection inspired by any of the museum’s permanent collection. I knew this was going to be private label, but quite frankly, the creative opportunity was too good to pass up. Moreover, the projected order volume was high, so to me it was good enough that I knew I designed it, since it was creatively and financially beneficial.
In a private label situation, a designer may be called upon to design, or to design and produce styles for sale by another company. For the Pico collection at the Met, I designed and produced the collection and then simply sold it to them at wholesale. This arrangement worked well for me, as noted earlier, because the total volume was so high and because I simply could not pass up the opportunity to create a collection for the Metropolitan Museum of Art. The collection was based on the incredible Arms and Armor section of the museum, and was profiled here. In the end, even though the museum shop did not sell the pieces under the Pico name, they did invite me to give an artist’s lecture at the museum to talk about my process and how I translated these objects into jewelry.
- Custom design work – Sometimes, a designer may be asked to do a project or collection, in partnership with another company, that doesn’t fall into a licensing or private label category. After holding the license with the Frank Lloyd Wright Foundation, I received (and still receive) quite a few requests to partner with other companies/stores/museums to create special collections.
When these opportunities arise, I typically send a basic proposal outlining several options. The options I present depend on what the initial outreach from the client requests. For my relationship with Yale Center for British Art, we knew the order volume was not going to be high. We call this “meeting minimums”. Because I knew Yale would not meet a minimum threshold that would make it cost effective for Pico, I proposed a few other options.
Design Fee. If a client is unable to meet a minimum, a designer can propose a design fee. This fee covers the time it takes you to design and develop a product explicitly for them. Don’t be afraid to ask for this. Your time is valuable and any time you spend designing something custom should be covered in your expenses.
Amortizing cost. Another way to handle this is to amortize the cost of your services into the price of what you charge the client buying your work. For example, if your client doesn’t want to pay you a $2000 design fee, divide that fee by the total number of items they order and add it to the wholesale cost of each. In my experience, I think the design fee is an easier sell, because in the case noted, you would be increasing your wholesale cost by $10 per item, which is alot when you consider it adds at least twice that – $20 – to the retail cost.
Exclusivity. The other factor that comes into play is exclusivity. If your client can’t meet a minimum and won’t pay a design fee, then you should definitely not give them exclusivity. You need to make money on the deal, too. You can propose that the client allows you to sell the pieces at retail and possibly that you can sell them wholesale to other retailers.
The final agreement you make will likely be a hybrid of these elements, but it’s important to know them before going in to a deal.
Being in the jewelry business is difficult. The market is saturated, and designers must be prepared to be flexible in order to keep client relationships open and stay in business. Comment below if you have been asked to work in an unusual setting!