Step 3 (pt. 16): Creating Your Products: Licensing
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Avish: Now let’s talk about licensing and how you can make money as an info marketer licensing products?
Fred: Yeah and there are two sides, two sides to it actually, Avish.
Avish: Okay I want you to explain what licensing is, and what the two sides are.
Fred: Yeah, well licensing is the idea that you either… the two sides to start out are, you can either license your products that you create to others or you can buy licenses to others to use, to sell to your customers. So I recommend that people very, very seriously consider doing both of these. And the whole idea is licensing allows you to take someone else’s material and often times to sort of brand it with your own name and to sell it yourself and not, you know make much bigger commission dollars because you often times pay larger fees. And then you don’t have to give people a per unit fee for using or selling each of their products. So, that’s what licensing is. Licensing is taking other people’s materials, or taking your materials and making them available with others in an arrangement that allows people too basically, sort of, you to have or someone else to have, sort of an instant product and a feel.
Avish: Okay and so when you said there’s two sides to it, you mean one side is, you license someone else’s stuff and the other is someone licensing your stuff?
Fred: You got it.
Avish: Okay. So let’s talk about… you said there’s four different types of licenses.
Fred: Yeah. The most basic type of license, everybody, pretty much listening to this program is probably familiar with, which is sort of the standard affiliate relationship. And this is where, you know you set yourself up to become an affiliate to sell someone else’s products or you allow other people to set themselves up as affiliates to sell your products. And, that is, sort of the most basic licensing and most, you know, people who set these up don’t really think too much about it. But it is something that you can either have a closed affiliate program where you know, people have to be screened and allowed in to sell your products or an open affiliate program, where you allow anyone to just pick up and sell your products.
Avish: Okay. And… a… why would somebody want a closed affiliate program?
Fred: Well, a lot of times you want to create, you know, the aura of exclusivity in order to make it seem like your products are more special A, and B, there are a lot of knuckle heads out there, and you’re trying to screen out some of these knuckle heads who might, you know, get out there and promote your products inappropriately. And when they do that, as it turns out, if something happens with one of your affiliates, and there’s a lot of money involved here, it’s often times the case that people come after you as the person who licensed them the products or gave them the affiliate relationship, set-up the affiliate relationship, and as it turns out, in most cases, you as the one who issued the affiliate status to that person become liable.
Avish: Now, well that’s unfortunate.
Fred: (chuckles) It’s unfortunate but the truth.
Avish: (laughs) Okay. Got it. So affiliate program is a way you’d recommend, especially when people who are starting out, that they all look for affiliate products?
Fred: Yeah. Well they should look for affiliate products for them to sell because it’s going to be difficult for you to create a ton of products upfront. So in the meantime once you start developing your list in addition to your own products, you may want to sell some other products related to your topic as an affiliate where you get a commission. Usually that commission for information products, you know, is anywhere from fifty percent on up. So that, you know, if you’re selling a product for a hundred dollars that someone else put together and you haven’t yet created something like that, at least you can make fifty bucks selling it with the fifty percent commission. So it’s, it’s a great way, and also it’s a lot easier to promote other people’s material than your own. Because it sort of looks a little bit self-serving to say hey, you know, I put out, I just created this great product here it is, you know, go get it. As opposed to, oh I found this guy while I was looking on the internet; he’s got some great stuff, yeah I think you should buy it. Again, people look at that as a little bit less self-serving, even though you’re making an affiliate commission.
Avish: Okay. That makes sense. Although, somehow I feel that this is not a problem you often have.
Fred: Yeah. I don’t think so… not as much… (Avish laughs in background)
Avish: Alright, let’s talk about some of the other licenses then so we have a, what’s called a re-sell license.
Fred: Yeah. There are three, three sort of, the basic types of licenses that I like to talk about. One is a re-sell license. In re-sell license is basically the following, let’s assume for all these examples we’re going to talk about that we’re dealing with a hundred dollar digital product. A hundred dollar digital product which means there’s no actual cost to the product cause its electrons. And so what… what a re-sell license says is, let’s say your normal affiliate program you sell this particular product we’re talking about here, as an affiliate as well, you give people a fifty percent commission. Now a re-sell license says, for a certain amount of money upfront, you basically have the ability to increase the commission that I give you as an affiliate. So let’s say with a hundred dollar product, you can sell it as an affiliate, make fifty percent… err… fifty dollars on every product. But if I said to you, you can give me between three to five times the sale price upfront, so between three and five hundred dollars on a hundred dollar product, you give me that money upfront in cash and I will grant you a higher affiliate commission. So now, you get the hundred dollar product to sell for and you make seventy percent and I make thirty percent but you have to give me three hundred or five hundred dollars upfront cash. Now, you would do these when it made sense financially, and you thought to yourself, you know what, I would make a lot more money ‘cause I know at least twenty people who are going to buy this if I sign up with a re-sell license because I make seventy percent. Well, let’s do the numbers. So its seventy percent on a hundred dollar product you’re making seventy dollars per product. At the fifty dollar level, you know, you were making, you know, you were making fifty percent or fifty dollars for each one. So the breakeven point to buy that license and let’s assume that license that I’m selling that license for… let’s say I sell it for three hundred dollars. At three hundred dollars, the breakeven point is I think, if I’m doing my math correctly isn’t it at about ten units?
Avish: I think its fifteen.
Fred: Fifteen units, yeah. So at fifteen units because I would be making, what is that, seventy dollars per unit times fifteen. So, do we have our math here right? So…
Avish: Yeah. ‘Cause you’re making seventy dollars instead of fifty so you’re making twenty dollars more so to make up for a three hundred dollar fee, you’d have to sell fifty.
Fred: That’s why Avish is around to check my math (Avish laughs in background). As an Ivy League graduate in computer science, he is the guy. So yes, so that’s, that’s the thing. So you’d want to look at, you know, you’d want to look at how many thing, how many products you’d project to sell right off the bat. I also like to think of it this way. I both tell people this and I’d think of it myself when I’m considering buying a license. I would only buy a license for a product if you can recover your initial upfront investments in that license within the first… oh, you usually between the first ninety to a hundred and twenty days, within the first, three to four months. So if you think you can make your money back on your license within three to four months you should get a license. If you don’t think you can make your money back within three or four months, then probably just, worthwhile to set up as an affiliate and do none of the licensing.
Fred: So the re-sell license allows you to buy-in at a higher rate of commission. Now again, these numbers aren’t set in stone, if you offer your standard affiliate commission of fifty percent it doesn’t mean that the re-sell license has to be seventy percent. It could be seventy-five percent, could be eighty percent. You could charge five hundred, six hundred, seven hundred dollars instead of just the three to five hundred. So that this isn’t a specific dictum as to what you must do, it’s just a suggestion of where you should start.
Avish: Okay. That makes sense. So the next type of license to talk about is the standard license.
Fred: Yeah, and I call it a standard license just because it’s the one that you most regularly see. And what this allows you to do, again back to our hundred dollar digital product. It allows you to take that hundred dollar product and to sell it as much as you want and keep all of the commission. If you give me between ten and twelve times the dollars: the retail price of the product upfront. So, in this example, a hundred dollar digital product, you pay me a thousand dollars and you get to sell that product and by the way, sell that product without making any changes to the product. Selling it completely intact. So you’d get to sell that product and not have to give me a dime of commission after you pay me the additional, the initial licensing fee. The key here is for me, if you’d buy my products, is you can’t change the products in any way. All the bounce-back offers within the product remain intact. So, let’s do an example. And you’re going to help me on my math here. So if you normally get fifty percent affiliate commission on a fifty dollar product. And I think even I can do this one Avish. And so what is the break-even point? How many would you have to sell if I said to you Avish, “I’ll give you a license for this product for a thousand dollars, its a hundred dollar digital product.” But, your other option is you can continue to sell this product as an affiliate. So now the question becomes, what is your break-even point? How many do you have to sell? And if my math is correct in my head, I think thirty units is the break even, correct?
Avish: I believe it’s twenty.
Fred: Well, but I think thirty because if you were to sell, sell them as an affiliate, you would make your thousand dollars. Ah, you’d make your thousand dollars selling twenty products, right? So you have to subtract out, am I not right there? Am I doing my math wrong?
Avish: Well you make fifty dollars more per unit.
Fred: Right, so wouldn’t you have to sell…
Avish: To make up that thousand dollars, that makes sense?
Fred: No not to me because if you sell ten, ten of them, you’d make five hundred dollars as an affiliate. And if you sell twenty of them, you’d make a thousand dollars as an affiliate. And if you sell, actually I’m coming out to forty now as my number to making it makes sense. Am I missing something here? Because you’d have to take the equivalent amount on the other side. So it’s the difference, it’s not the…and not just one number, am I not seeing this correctly?
Avish: Yeah. I’m not sure… it’s ah… I mean if you’re selling it for a hundred dollars or… and getting all the money or as an affiliate and getting fifty dollars, the difference is fifty dollars per unit. So that already takes into account the subtracting out.
Fred: Yeah you know what? That’s why I have you here. (Avish laughs in background). So in other words again, so what I’m saying though is, that the computation that you should make either as the seller of licenses or the buyer of licenses has to do with the computation of how many you accept as expect to sell. How, in what time frame you expect to sell them? And again I’d like to see you recoup your money within three to four months. So ask yourself, if I spend a thousand dollars for this hundred dollar product, will I be able to sell twenty products, and I can see where you’re doing it, twenty products and I’ll be breaking even. I’ll be able to get a hundred dollars for every product as of unit number twenty-one. So as of unit number twenty-one, my license is paid for, and so therefore you ask yourself, can I sell a minimum of twenty units in the next three to four months? Because then after that, every unit I sell I get a hundred percent profit on. But myself, as the person who granted you the license Avish, I get to keep all the bounce backs that come back to me because those bounce back offers remain intact in the system and in the product.
Avish: Got it. So it behooves you, to get this product out there ‘cause you have bounce backs in there.
Fred: Right. It means if I’m selling you licenses to my products, I think to myself you gave me a thousand bucks, I want you to sell a hundred thousand units of that. Because there’s so many opportunities that I have when people listen to that product or watch that product wherever four months in that I will eventually get lots of people coming back to my other websites because again, one of the conditions of this license is, you cannot change or alter the product itself.
Avish: Okay. And I think that’s going to be a key form for the third one? What is the master license?
Fred: The master license is this, then again there might be another variation that we can talk about, you know, briefly. But the master license says this; everything is the same as the standard license except in addition to being able to sell your product that you buy, that the product you buy from me. Let’s say you’re buying a license from me, Avish. The hundred dollar product, you bought that from me at retail. I mean, you pay me a thousand dollars for the license right? For the Master license, not only do you get to sell other people that product at retail, you also are granted the right to sell licenses. So let’s say for example, you decide you’re going to sell, get a Master license to my hundred dollar product. The normal fee for that runs up to fifty to sixty times the retail sales price or five to six thousand dollars. So let’s make it easy for the math, which is obviously a problem for me. And let’s put it at fifty, let’s put it at five thousand dollars. So at five thousand dollars, you’re going to say to yourself, you’re buying the Master license. You say to yourself, you know what? I’ve got five people already lined up, who will pay a thousand dollars to buy the license to this product. So you’ve already broken even in just your sales of licenses and then everything you sell at retail or any additional licenses you sell are gravy. So, fifty to sixty times retail price is the standard price for a master license. Now the master license also means that I as a licensee can sell other licenses. I can sell standard licenses, I can’t sell master licenses, I can sell standard licenses. And also when I do licensing of any products, the standard license I will sell as many as I like. But with master licenses, I’d limit the total number of master licenses that I can sell. Usually it is somewhere between five and ten units. So there aren’t, you know, so there aren’t hundreds of people running around there with master licenses to your product.
Avish: Okay. Now for the master license and for all the licenses you’d never let the product be edited?
Fred: I don’t. Except I can do a variation on the master license, which is if somebody buys a master license I might agree to let them private label that particular product. And again we can take this one or two steps further. The standard master license says, everything’s got to remain intact. You can sell the product in retail but you can also sell standard licenses to whomever you want. The master license that would be sort of a private label version of this, and then again now you would be probably looking at a hundred times retail price or ten thousand dollars, is you can go in there and you can change, the title, and you can change the cover to the product, and you can change things on the surface. And that would be sort of one level of additional master licensing that you might, you know, might agree to. And the second level of additional master licensing changes that you might want to agree to, although I’ve never done this, is where you allow people to go into your product and change all of the bounce back offers. If you did that now we are looking at probably two hundred, two hundred times your product standard retail price or twenty thousand dollars to be able to do that. So you could go in and change all the bounce back offers to go to you rather than the person who created the product.
Avish: Okay. Now that’s not something you’ve done… that level of license?
Fred: I haven’t done that level of license. I’d seen other people do it. I… I frankly… there’s so many… there’s so many bounce back products and offers that I have that I really don’t want to lose out on that opportunity.
Avish: Okay so now we’d talk about the different licenses. There’s a couple of things from both side of it. So if you’re interested in licensing someone else’s obviously we’ve gone through the numbers, so that’s the first thing you’d do right? Make sure it makes sense…
Avish: And then have you, I mean do you just, you’d just like email the person or pick the phone up and call them and say I want to license your product, or is there ah, is there like a website you go through, how does that work?
Fred: Well in general if you’d find a product that you really like and you want to license it, the best way to do is to just contact the persons and say, “hey, by the way, do you license your products? And if so do you have…you know, what are the different licenses available, what do they cost?”
Avish: Okay makes sense. And what about the flip side, you know, when do you start licensing your products and how do you go about doing that?
Fred: Well I mean for me at least I don’t really see, you know, if you create a great product I don’t, I don’t think there’s any like waiting period before you can start licensing those products. So I would go ahead and start licensing the products that you create as soon as you create them. Because it just provides another opportunity to get you information out there in the world, to get your bounce back offers out there and to get paid for it.
Avish: So I mean, is there a situation where you would not recommend someone license their products?
Fred: Yeah, I mean a lot of times it’s similar to like, you know, how the movies do things and when they do their DVD releases. You may want to take a certain amount of time when a product is first released, not to allow anybody to license products so you can sort of skim all of the easy sales of the top. And make sure that you’re getting those and not somebody else’s who’s got a big list who may actually be, you know, cannibalizing some of your sales. But in the long run I don’t really think it makes a whole hill-of-beans of difference but some people like to hold off, you know, for the first ninety days the product is released. They don’t do any licensing and only after then do they do the licensing. Which again there’s something to be said for that.
Avish: Okay. It’s a lot of information but it definitely makes sense.