How are endorsement fees calculated?

November 16, 2007 5:36 PM

Scoobie Doo endorses Mac&Cheese by allowing his likeness to appear on the box. Question- how do his master and the folks at Kraft decide on his price?

Or say Mr Bandaid sells a ten million units a year. He sees the popularity of, say, Spongebob Squarepants. He decides that slapping SBSP on the bandaid might boost sales a bit among the hip set. He approaches the owner of SBSP with an offer to do just that.

Where do they begin? Where do they end? Royalties on a portion of the sales increase year over year? Flat fee, and if so, how is it put to Mr Bandaid so he'll think he's getting a good deal? How do they judge between a unisex hero like spongebob vs an alienates-half-the-audience heroine like Barbie? Might not a bold Mr Bandaid assert that he's doing SBSP a favor by giving him, in effect, free advertising?

No doubt each negotiation is different, but there must be some general scenarios. Interested to know what's worked in the past. Thanks in advance

posted by IndigoJones to work & money (5 comments total)

lots of research is being done on how well-known your trademarks are. a holder will send a research agency out to survey how many kids recognize scoobie and they will come back with an approximately seven-thousand kilogram book of results that in the end boil down to something like "xxx is recognized by 46% of preschool males with preferences for cookies and nap-time." ... they compile statistics that tell you exactly who knows and likes your character, what these people also like, how your trademarked character compares to other in the category and so on. kraft probably did the same. companies sniff out trends and sell the research. someone on one of the two sides said "hey, this character is important to the people kraft is trying to reach" and calls were made. the numbers were negotiated based on that penetration and the circulaton of the advertisements (x million packs, tv ads, etc). it's much more of a question of how much of a difference this will make in terms of eyeballs and what each eyeball is worth than what anyone thinks they should pay or get.

btw... the whole process is thoroughly unenjoyable and unexciting for everyone involved. think of an insurance agent typing a claim.

most recognized shape in the US, btw: michael jordan's head. beats even jesus. I kid you not.
posted by krautland at 5:55 PM on November 16, 2007 [2 favorites]

Look up information on cross promotion scenarios. I would imagine the process begins with a proposal from one company to the other, the establishment of a mutual interest in cross-promoting, the building of a relationship, the sharing of statistical data and creative aspirations. The main three elements I would argue are:

1. what do you want to say to the consumer?
2. who is the target audience for each product?
3. how much profit do you expect to make, and what do you consider a fair split of said profit?

based on projections, you reach a deal.
posted by phaedon at 5:58 PM on November 16, 2007

Mostly a fixed royalty percentage. Big names like Sponge Bob get a better rate than smaller names. Barbie gets a great royalty rate. Every negotiation is different though, and sometimes there are changing royalty rates based upon sales volume as well as signing fees. Milestone payments can also be included.

the whole process is thoroughly unenjoyable and unexciting for everyone involved. think of an insurance agent typing a claim.


I'm weird, and like this stuff.
posted by caddis at 6:02 PM on November 16, 2007

The marketing department of Company A (say, Johnson & Johnson) pitches the idea of a tie-in to the marketing department Company B (say, Mattel). The financial details are generally kept secret other than a press release which would state Company A has struck a deal for $X with Company B but generally (very very generally), the company with the less sexy product (bandages) is paying a licensing fee to the company with the more sexy product (toys).

Regarding alienating half the potential audience with Barbie Band-Aids: notice that there's always a row of Hot Wheel Band-Aids on the same shelf. Both Barbie and Hot Wheels are Mattel properties and were part of the same licensing deal w/ J&J.
posted by jamaro at 6:04 PM on November 16, 2007

Always gratifying to get the nuts and bolts on these things. When I bother to think about it at all, I am astounded by the complexity of modern business. Many thanks.
posted by IndigoJones at 9:41 AM on November 17, 2007