What You Need to Know Before Signing a Licensing Contract

Have you ever wondered how artist get their artwork on products in stores such as stationary, wallpaper, fabrics, and home decor? It’s done through a licensing contract.

What is a Licensing Contract?

A licensing contract is a signed agreement between an artist (licensor) and a company (licensee) allowing the artist’s artwork to be reproduced on the company’s product, and then distributed to be sold in stores that carry the product for an agreed upon set of terms.

Every company and manufacturer has their own unique way of doing business. If you are an artist that wants to work with a particular company it’s best to research the company, and then reach out to them in person to build a relationship.

Surtex Show in New York City

How to get a Licensing Contract

Basically, there are two ways to get a licensing contract; through an agent, or on your own. There are pros and cons to both.

Working with an Agent: This usually requires you to sign a 1-3 year contract with a licensing agent giving them exclusive rights to your art. That means you are not allowed to sign a licensing contract without them.

Usually, they take 50% of the money made from all licensing sales. Also, they are the ones responsible for finding you licensing contracts. A good agent will showcase your portfolio at all the big licensing shows where companies large and small, gather from around the world looking for new art to go on their products. These shows include the Surtex & Stationary show in New York City, AmericaMArt in Atlanta, GA, and online at Art Licensing Show.com. A good booth at these shows cost $5000-$15000 or more! This fee is paid by your agent, which can make the 50% split well worth it as long as they are hustlers at selling, and not just sitting back quietly hoping to take orders. They’re also responsible for submitting your work to meet company deadlines throughout the year.

TipDo not enter into an exclusive contract with an agent unless you are 100% sure they understand you, your art, and are aligned with your business philosophies. Working with the right agent can be a wonderful experience allowing you to do all the making, while they handle all the selling, but it can also be exhausting if you find yourself always second guessing your agent’s decisions, and double checking every contract, contact, and royalty check every quarter.

On your Own: The best part of getting your own contracts with companies is not having to split the income made from the licensing contracts. This also means you will have to be the one networking with companies you believe to be a good fit. You will have to be the one gathering information and summiting your artwork to land a licensing contract. This can be a good thing because sometimes agents can be vague on the details about what a company wants you to make or modify to your art, and usually, don’t let you talk directly to the licensee.

You will be responsible for getting a lawyer to draw up a contact or look over a licensee’s contract (if you signed with an agent they do this part).  You are also the one who has to pay for booth fees for shows along with traveling expenses.

Doing this all on your own can be time consuming, but you will be building direct bonds with the licensee instead of your agent, and at the end of the day those contacts could be worth a whole lot more to your business!

Tip: If you are new to the industry sign a one year licensing contract with a reputable agent that represents less then 30 artist (some agents represent 80 or more artist and it’s easy to get lost in the mix). Make sure you are not obligated to pay them for future licensing deals past the one year term of your contract! Go to the licensing shows with them (They can get you in for free), and walk the aisles. Learn how to network in the industry. After one year you can decide to sign up again with your agent or strike out on your own.

 What Happens Once You Signed a Contract?

Hooray you signed a licensing contract! Now What? Here’s what happens next:

– You sign a contract, and keep one copy for yourself, give one to the licensee, and also another copy to your agent if you have one. (Do not loose your copy! You will need it to refer back to.)

– You may have to do some modification to the artwork before sending over to the licensee. This could mean adding text, changing a background color, altering the dimensions or even creating more artwork to fill out a collection. Knowing how to use Photoshop or Illustrator will be important. (Also having a Wacom tablet is useful in this situation)

– Then you send over the artwork to the licensee’s specified dimensions, size, and file format. (Most companies want your artwork 300 dpi in a layered Tiff file).

– Next the art gets put on the company’s product, usually in China.

– Samples are made and need to be approved by the licensee and you (make sure your approval is included in the contract).

– Once the samples are approved the product can be manufactured, and then is sent to distributors to sell (They sell it at the wholesale price. You can also order at the wholesale price if you want to sell it yourself). Distributors must take orders from stores and shops all around the country and possibly the world. Then, they make sure the product gets delivered.

– Once the product is in stores it can be sold! Yeah!

– At the end of the quarter the licensee tallies up all the sales and pays you or your agent your royalties. This usually takes 30 days from the end of a quarter. If you have an agent add another 30 days until you get paid.

– This entire process takes 8 months to 18+ months to complete. This means you’re always working one year in advance on artwork for products.

 One of my flag designs I licensed out to Lowes

IMPORTANT! You need to know:

– At anytime during this long process the entire contract can fall through. There are many things that can go wrong. A company can go out of business, a material can become unattainable for manufacturing, or products can be damaged during shipment. Don’t count on the paycheck until it’s safely in your hands!

– A lot of licensed products only have a shelf life of one quarter. What that means is you waited a year for one paycheck. There is also NO guarantees on how much that paycheck will be. It could be worth $4500.00 or $45.00.

True Story- Above is how much I made from one of my quarterly royalty checks.

$ How the Payment Structure Works $

Every contact is different, and should be read carefully. It’s possible to set up a contract with a onetime pay out called a flat fee, but this is uncommon. Most licensing contract are set up to pay the licensor quarterly with royalties.

The industry standard is to pay out 5% royalties of all retail sales to the licensor from the total quarterly sales. Sometime smaller companies will offer 8% and it’s typical of larger companies such as Lowe’s, Target, and Wal-Mart to only pay out 2.5% of total sales. (If you have an agent then that means you have to split 2.5% leaving you with 1.25%)

Sometime the licensee will offer an advance in the contract of a set amount of money in addition to royalties, which can be exciting until you realize its not extra money, and it get’s deducted from your royalties. However, if the advance is large enough it can be well worth it should the product not do so well and is worth more then what the royalties bring in.

Here are a few examples of industry standards pricing:

– One greeting card is worth: $500 (Usually good for one quarter)

– Garden Flags: $500-$2000 (Usually good for one quarter)

– Fabric collection normally pay out by the yard. A popular fabric line can pay upwards to $6000-$15,000 a season and possibly more if it’s not discontinued after the first season. Just know you will make the most the first quarter and less and less each additional quarter.

– A Stationary Line or Gift Line: This is usually worth a lot because it’s an entire collection made up of many different products such as note pads, mugs, stickers, envelops, wrapping paper, cards, and the list can go on and on. You usually get paid 5% royalties, and if it’s a popular line the money can add up! It’s usually exciting to get these contracts and more difficult. Two of the larger companies know for there gift lines are Damdaco and Hallmark.

How to Make a Full Time Career in the Licensing Industry

If you like to keep up with trends, can create art to meet deadlines, and nurture important relationships with the companies you work with or want to work with; then, it’s very possible for you to make a living creating artwork for the commercial world.

Here’s what you need to do:

– Design at least two collections a year, a Spring collection and a Fall collection. These collections should consist of 4-16 larger sized designs, 3-6 medium sized supporting designs, and 3-4 smaller sized repeat patterns including boarder patterns.  A collection must also tell a story. Think of how you want to represent individual designs, and also how to combined them all together.

– Once a collection has been made you can then summit it to multiple companies for licensing. Individual larger sized designs can be separated from the collection to summit to additional contracts as well. For example summiting one design from a  9 piece collection to a flag company.

– Companies tend to look for collections that have a popular theme that are trending. For example, around the holiday season a popular trend is to design a snowman because they are recognized around the world without being associated to religious believes. The trick is to know the trends, and to then put your own unique spin on them to stand out from the crowd.

– Each season and holiday brings with it subject matter that are annual crowd favorites for selling. Companies won’t stray far from what they know will sell. If you bring something that is fresh and new to the market be prepared to work at selling your new idea. This could be challenging. If you can get one company to sign a contract with you, and that collection does well, then everyone else will follow!

– The goal is to get a lot of contracts with one collection with different companies that all produce products in difference materials. For example you want a contract with one fabric company, one paper company, one gift company, one glass company, one flag company, one resin company, ect… you get the idea.

What’s important is that you don’t compete with yourself with two companies that produce the same product such as two different fabric companies. This is a huge NO NO in the licensing industry! If you can get multiple contracts from a collection you design twice a year, then that’s when you start to see your paycheck accumulate! You’re in business baby! Yippee:)

It usually take 2-3 years of hard work to build up enough contracts and connections with licensees to see your art career really blossom into a full time job. Be patient, work hard, and learn from every experience good or bad, and you can make it happen:)

Me with Elizabeth from Elizabeth’s Studio at the International Quilt Market

My Personal Experiences

Here are a few life lessons I learned from my own personal experiences with licensing contracts:

Your relationship with the licensee is very important!

My Best Experience: I learned just how valuable relationships are when I signed a contact with Elizabeth’s Studios. They sell novelty fabric collections and are very very good at what they do. I feel extremely fortunate and proud to be working with this company, and almost didn’t at first! My agent brought this contract to me at a time when I wanted out of the licensing industry. I had just been burnt by a large company, and lost faith in the industry.

Elizabeth herself called me directly. At the time this was unusual for me because my agent would not let me speak to any of the licenees I had contracts with (That was fine with me because I didn’t want to talk to anyone. I just wanted to paint). After speaking with Elizabeth I went ahead and signed a contract and started working on a fabric collection with her. It was the best decision I could have made in that industry. Not only was my artwork in her fabrics very successful, I also learned an extremely valuable lesson, and that was the importance of communicating directly with the licensee.

From that day on Elizabeth and I would talk directly via phone or email. I got so much more accomplished working with her then all the other companies because if I had a question I was able to get a detailed and specific answer from her (not a vague one from my agent), and in the end, I felt more connected to the project I was working on.

My Worst Experience: Prior to my experience working with Elizabeth’s Studio I had signed a big contract with a large and supposedly reputable company to have my bird designs made into a kitchen collection. The products would include coasters, cutting boards, mugs, clocks, and more. The samples were fantastic, and I was so excited to see my display at the Gift Show in GA! Then I got my first paycheck and was very disappointed to see how little it sold. I waited again for the next quarter and sold even less. I was confused. I had been in the industry long enough to know something was wrong. My agent agreed with me.

She did her best to get answers, but instead got excuses. She was told there was someone new handling licensing contract (3 times!) and would have to wait for answers or they would use their favorite line, “We’ll get back to you”. Meanwhile, I watched as my products were being sold in stores all round the world and I wasn’t seeing any money from it. It was even being sold after my contact was up! Finally, my agent looked into getting an audit, but told me it would cost us $4000-$5000 to conduct the audit (we would split the cost) We both wondered if the royalty sales didn’t amount to more then that, would it be worth it? She left it up to me, and I decided to cut my loses and move on.

I learned a hard lesson that day. Most of all I hated the feeling of being helpless. I was not in a position to ask questions and didn’t have any contact information. My agent had them all and I had to trust her. After that I knew I wanted to know more, and have more control over my own contracts.

Another hard lesson I learned was to pay close attention to how companies I had contracts with conduct their business.

I had one contract with a stationary company early on that did a fantastic job with creating a line of greeting cards with one of my collections and in the end I thought it sold okay. Years later, I discovered through talking with several sale reps for stores who bought that stationary line said they also loved my cards and when they went to order more the card company never refilled there order or even responded back to their request! This was the case with several stores. I was shocked and mortified! I had complete trust that the stationary company was doing everything they could to sell that collection, and came to find out they were disorganized with their sales and not doing a good job at all communicating with their customers. I later discovered they went out of business shortly after my contract was up.

I now know to ask questions to the licensees up front. Question such as: 

How do they plan to sell the product?

Where and who do they plan to pre-sell the product to? 

How much do they estimate to sell in the first quarter? Second quarter? 

When will they discontinue the line? 

How many stores do they currently sell to?

What is the estimated release date for the products to hit stores? 

When can I expect to see samples?

Do I have a say in the product design before it goes out to the manufacturer?

Can I also buy at the wholesale price?  (To resell on my own website)

Do they distribute to stores themselves or do they work with a separate distributor? 

I also learn the importance of advocating for my own art even with good licensee.

Because I sold my own artwork at art and craft shows I knew exactly what consumers wanted and also knew which designs were my best sellers. This gave me the confidence to push for contracts for my most popular pieces. Surprisingly, a lot of companies really have no idea what sells to the public. They either make a judgment call or stick to what they know sold in the past. A lot of them copy what’s working from competing companies instead of trying something new themselves. Trying something new is scary and could be costly, so if you want a company to take a chance on you, it’s up to you to sell them on your art!

I even had to nudge Elizabeth at Elizabeth’s Studio to create my cat collection on fabric (which is one of my best selling collections). She had to break out from her tradition ways of creating a fabric collection to do this and breaking habits is a hard thing to do! Originally, she asked me to paint full bodies of cats playing. I didn’t like this idea because the whole concept of my cat collection centers around the personally of the cat’s face and the message I wanted to convey was best accomplished by close-ups of the cats with their bodies cropped out of the paintings. Traditionally in fabric you don’t crop out the image.

Elizabeth didn’t like the full body cats as much as the close ups and, decided to skipped over that collection for the time being. Time went by and she invited me out to the international quilt market in Pittsburg, PA. She asked for me to bring some samples of my artwork. I brought the cats, and her customers loved them! Her associate and I told her to think outside the box. The following week she did and came up with the best fabric collection with my cats! It sold really well and she is now currently working on a dog fabric collection with my art.

Final Tips:

– Don’t fall for the line, “Can you make more sample? If they don’t get used it will still be good for your portfolio.” Agents and licensees will try to get you to paint all sorts of things for free and NOT use them! Don’t get sucked into this trap. In the beginning you will want to please everyone and it will wear you out. Choose carefully whom you go the extra mile for.

– Every product line is different. Study up on the different products and see which ones suits you best. I have one artist friend that is an expert with puzzle companies and knows everyone out there in that business. She took the time to research online all the different companies large and small. She even called and talked to the owner or sales rep at the companies. It helped her navigate their contracts because each one offered her something different, and she was able to choose the contract that best fit her needs and work with the people she felt most connected to.

– Remember you don’t have to sign any exclusive contracts if you don’t want to. Any contact can be admened to meet your demands. Yes, you can have demands too!

– Always try to talk to the licensee directly.

– Always listen to your gut.

– No one cares more about selling your art then you! You will have more passion and enthusiasm to sell your work than anyone else (even if that is pitching a collection to an agent) Remember to stand up for yourself and always advocate for your work.

Would you like to know more?

If you have questions about the licensing industry, let me know in the comments section below. I’d love to hear from you, and try to help:)



2 thoughts on “What You Need to Know Before Signing a Licensing Contract

  1. Tracy, you are a real wealth of knowledge!!! Thank you so much.
    Thank you so much for helping the clueless…and the beginners.
    If I just did craft fairs…can you give me and estimated guess as to what I might make in a year ? It seems to me that this is a better
    and more fun way to go? You and Allison Bramhall will be my go to people…Both of you are from Maine….a state I love…Both of you are willing to help out the beginners and are great people. Thank you, Thank you, Thank you….Stephanie

  2. Hi Stephanie,
    It was wonderful to meet you this past weekend! Shows are a lot of fun, and if you’re willing to put in the work they can easily become a full time job. I replaced my full time teaching income just selling at shows and made 3-4 times my yearly teaching salary (That’s after teaching 8 years). I love that I control my own schedule, but it’s definitely a labor of love because I probably put in 3-4 time the hours into selling my art full time then teaching.

    Start off by entering in a few local shows and see what resinates with the crowd. Then build collections around those pieces. It’s also very important that you don’t sit back too much at a show, because it’s super important to talk to your shoppers! Get to know them and figure out how you can help them. Lastly, this business does take a bit of patients. Art usually takes time to sell. A lot of people don’t buy the first time they see your art, so it’s important to make a good impression, and make yourself available in the future. It takes a couple of years to build a cliental. If you are willing to put in the work it’s well worth it!

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