My First Licensing Negotiation – Lessons from the Deal Table

Licensing isn’t just about creativity—it’s about negotiation. And when I sat down for my first-ever licensing negotiation, I quickly learned that getting a deal across the line requires more than just knowing the numbers.

In this episode of Born to License, I take you back to 2009, where I found myself in a Melbourne café, sitting across from the brand manager of a yogurt company, leading my first licensing negotiation for a Sesame Street deal. It was a crash course in royalty rates, minimum guarantees, deal memos, and the art of finding common ground.

We’ll cover:

• The deal memo – Why it’s the foundation of every licensing agreement

• Sales projections & financial commitments – How minimum guarantees are determined

• Industry royalty benchmarks – Why rates differ across product categories

• The power of collaboration – How trust and flexibility create successful deals

Negotiation isn’t just about winning—it’s about building partnerships that work for both sides. If you’ve ever wondered how licensing deals actually get made, this episode takes you inside the process.

And if you have a burning question about licensing, I want to hear from you! Episode 10 will be a special Q&A where I answer listener questions—so send yours to hello@borntolicense.com, and I’ll do my best to include it in the show.

Listen now and subscribe on Apple Podcasts, Spotify, Amazon Music, or your favorite podcast platform.

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Chapters

• 0:00 Welcome Back – The Art of Licensing Negotiations
• 2:24 Setting the Scene – My First Licensing Deal
• 2:54 Laying the Groundwork – Defining the Deal Memo
• 5:10 Money Talks – Royalty Rates & Minimum Guarantees
• 7:10 Closing the Deal – Finding Common Ground
• 7:51 Key Takeaways – Lessons from My First Negotiation
• 10:51 What’s Next – Exploring Licensing Categories

Transcript

Hi, I'm David Born, and welcome back to Born to License. This season we're diving deep into the world of licensing, sharing stories and insights from my nearly two decades in the licensing industry. In today's episode, we're tackling one of the most pivotal parts of the licensing process. The negotiation. 

Whether you're the licensor, the licensee, or the agent in the middle, negotiating the terms of a deal can make or break a partnership. It's where creativity meets practicality and where both sides need to find common ground. I'll be taking you back to one of my very first licensing negotiations, a moment where I learned the importance of clarity, communication, and staying cool under pressure. We'll break down the key elements of a deal memo, from royalty rates to minimum guarantees, and explore how the groundwork for licensing agreements is laid. Negotiation is not just about numbers, it's about relationships, trust, and making sure everyone walks away feeling like they've won. So let's head to the table and see how deals in licensing really do come together. 

Now, I should also make you aware that for confidentiality reasons, the numbers I'm including in this conversation are not real. But they do serve the purpose of providing guidance on how a deal can be negotiated. So, let's go. 

It's 2009 and I'm sitting in a cafe in Melbourne, a blank deal memo in front of me, pen poised. Across from me sits Paul, the brand manager of a yoghurt manufacturer, arms crossed, a skeptical expression on his face. I take a deep breath. This is my first time leading a licensing negotiation and I need to get it right. Paul leans towards me. Alright, David, walk me through this. What do we actually need to agree on today? I nod, keeping my voice steady. We're drafting a deal memo which outlines the key commercial terms for the Sesame street licensing agreement. If we align on these, we can move to the full contract. So let's start with the basics. 

The license term, three years is what I would suggest for this. What do you think? Paul taps his fingers on the table, thinking, three years. Yes, that works. I jot it down. I think that makes sense. It gives us enough time to launch, establish the product in the market and gauge performance. If it's a success, we can talk about renewing. Paul nods, scanning through the page. 

Okay, next territory. Where do you want to sell? I ask, pen hovering over the page. Australia? New Zealand, Paul replies. It's. It's our core market. I write it down.  Great. That keeps it focused and avoids any potential overlaps with existing Sesame street deals. In other Regions, Paul. Scan's the next section. 

Licensed articles. The specific products you'll be selling under the license. I explain. Right now we're looking at a six pack and a 12 pack of yoghurt multi packs. Does that align with your plans? Paul nods. Yeah, these are our biggest sellers. I scribble it down. Okay, moving on. 

Distribution. Where do you plan to sell the product? Supermarkets and convenience stores, he answers quickly. That's where most of our volume is perfect. That ensures the product is placed where families like to shop for yoghurt. I note it in the deal memo. Paul leans in, eyes narrowing as he reads the next section. 

Sell off period. What's that? Well, that's how long you can keep selling the product after the license expires.  Buyers, I explain. Standard is 90 days. That way if you have stock left at the end of the agreement, you can sell through that stock instead of having to pull it from the shelves immediately. Paul nods. Yeah, 90 days works. No one wants to deal with wasted stock. I write it down and take a breath. 

Next is the in store date. When do you see this hitting the shelves? Paul thinks for a second. November this year. That gives us time to develop the packaging, get approvals and start production. Plus warmer months means more yogurt sales. I smile. Smart timing. That means we'd need the licensing agreement finalized as soon as possible so you can move into product development. Paul crosses his arms. 

Alright, now let's talk money. I grip my pen, trying to stay composed. Minimum guarantee. This is based on projected sales.  What's your estimate for the three year term? Paul considers this. Well, if things go well, we're looking at around $4 million in sales. I quickly do the math. Okay, at 5% royalty rate, that would equate to about $200,000 in royalties. So minimum guarantee would be set around that amount. Paul raises an eyebrow. And if we don't hit that number? Well, you're still committed to paying the full minimum guarantee, I explain. But once your royalties surpass 200,000, you only need to pay additional royalties on actual sales. So that's called overage. Paul leans back. So we're taking on some risk. Yes, I say. But you're also securing working with one of the most popular and trusted children's brands in the world, I point out. There is a lot of value in that. Paul drums his fingers. 

Alright, let's talk about payments.  When do we pay the minimum guarantee? I have a particular structure in mind. We'd break it into four installments. 25% on signing of the license 25% in six months, 25% six months after that and the final 25% another six months after that. Paul nods. That helps with cash flow. Fine. I check the next section. Royalty reporting. This is when you report your sales and pay royalties if you hit overage. Standard is quarterly. Does that sound good? Paul takes a sip of his coffee. Quarterly works, but can you explain the minimum guarantee and how it works? Offsets royalties again? Sure, I say. Each quarter you will report sales and pay the agreed royalty percentage. Those payments count towards the minimum guarantee if you surpass $200,000 in royalties before the term ends. Any additional payments are purely based on sales, no extra upfront costs.  Paul exhales okay, that makes sense. 

I put down my pen, looking at the completed deal memo. Alright, we've got the key terms down. If this all looks good to you, we can move to the contract phase. Paul studies the document, then extends his hand. David, I like what I'm hearing. Let's keep the conversation going and refine the details with legal. We shake hands and as he leaves, I finally take a sip of my now cold coffee. I just led my first full negotiation, building a deal memo from scratch, and it felt like a huge step forward. 

So that was my very first licensing negotiation and I remember walking out of that cafe feeling a mix of excitement, relief and a little bit of exhaustion. To be honest, negotiating a deal memo for the first time was an eye opening experience. 

It showed me just how much strategy, patience and problem solving goes into getting a licensing agreement off the ground. What stood out most to me was that licensing negotiations aren't just about throwing numbers back and forth. It's about balancing the needs of both sides. Building trust, making sure the deal works in a way that benefits everyone. 

Looking back, I learned some critical lessons from that first negotiation and I want to share four key takeaways with you. 

Number one, a deal memo is the foundation of a licensing agreement. The deal memo. It's not just a summary, it's the blueprint that shapes the entire licensing agreement. It lays out all of the key terms, like the length of the license, the markets covered, the products included, and the financial commitment. Without a strong deal memo, the full contract process can become pretty messy and time consuming. Think of it as making sure the foundations of a house are solid before you start building the rest. 

Number two, sales projections play a key role in financial commitments. The minimum guarantee isn't just about a random number. It's calculated based on expected sales. The reason Paul and I had to align on forecasts was because the minimum guarantee represents a commitment from the licensee to meet those numbers, ensuring that the licensor gets a fair return. If actual sales exceed projections, royalties kick in beyond the guarantee amount. Understanding this financial structure is key to managing risks on both sides. 

Number three Royalty reports vary across categories. You'll notice that Paul and I agreed on a 5% royalty rate, which is fairly standard in the food and beverage category.  But in other categories like apparel, toys and accessories, royalty rates are often significantly higher, sometimes reaching 15% or even higher. The difference comes down to product margins. Food and beverage items are lower margin products, which means the royalty rate needs to be lower for the licensee to remain profitable. Understanding these industry benchmarks is crucial when structuring a licensing deal. 

And finally, number four, the best licensing deals are built on collaboration. At its core, licensing is about partnerships. Both the licensor and licensee need to feel like they're getting value from the agreement. If one side is too rigid or unwilling to compromise, the deal is unlikely to succeed. Negotiations work best when there's willingness to find common ground, just like Paul and I did when structuring payments, sell off periods and reporting timelines. A great licensing deal isn't about winning.  It's about creating something that works for both sides. 

In the next episode, we're shifting gears a bit and looking at the types of licenses that exist in the industry, from entertainment and sports to corporate and celebrity brands. Licensing isn't a one size fits all model. We'll break down the major categories, explore how they differ, and discuss what makes each one unique. And remember, if you have a question about licensing, send them my way. I'd love to answer them at our Q and A finale. Thanks for joining me on Born to License. Until next time, keep looking for those deals and stories that shape the products that you love.