Economists have cautioned against tariffs due to their historical negative impact. They typically raise prices for consumers, reduce international trade, and harm the American businesses that are affected by them. In the world of licensing, they have set both licensees and licensors on edge.
What are Tariffs?
Tariffs are duties imposed by governments with the primary purpose of making imported goods more expensive, thereby encouraging customers to buy domestic products. Tariffs are paid by the importer, meaning that the seller receives exactly the same amount of money for the goods as they did before. To defray the additional costs, importers must often raise consumer prices.
How do Tariffs Impact Licensees?
From the licensee perspective, if tariffs increase the cost of importing either raw materials or finished goods, it infringes on their profit margins. However, passing the increased costs on to consumers may reduce the volume of goods they are able to sell. Basic Fun! toy company, for example, makes 90% of its products in China. The toy industry as a whole sources nearly 80% of toys sold in the U.S. from China. “The reality is that tariffs will raise the cost of toys for consumers,” explained Jay Foreman, Founder and CEO of Basic Fun! “If a customer says, ‘Then I can’t buy it’, then I can’t sell it, because I can’t produce to lose money.”
Considering that many licensed consumer goods fall under the umbrella of discretionary spending, they stand to be among the first things cut as economic concerns rise. In March 2025, American consumer confidence slumped to a 12-year low due to concerns over inflation, trade, and tariffs. While these factors pose an immediate threat to consumer spending power, perceived threats, like intensifying fears of a U.S. recession, can prove equally costly to businesses, particularly those providing goods and services that are viewed as optional.
In addition to the threat of reduced sales, licensees have to pay attention to minimum guarantees—the fixed amount they have agreed to pay a licensor regardless of sales performance. All of these factors leave the licensee community proceeding with caution, while looking for innovative ways to weather the storm.
How do Tariffs Impact Licensors?
On the flip side, fewer sales of licensed properties directly impact the royalties collected by licensors. In the short term, this means reduced profit and a potential drop in global sales as the tariffs price licensed consumer goods out of the competitive realm. “It doesn’t make sense for the consumer to pay a 25% tariff for the U.S. when they live in the U.A.E.,” explained Chip Malt, Co-Founder and CEO of Made In.
Even if terms provide for a minimum guarantee, licensors’ real profits take shape when licensee businesses thrive. In the long term, licensors may face greater challenges commanding top dollar for their properties and may even need to renegotiate license terms in order to maintain viability for licensees.
These factors can lead to strained relationships with licensees, especially when they are forced to maintain pricing or honor minimum guarantees that were negotiated prior to tariffs being levied. A healthy and communicative licensee/licensor relationship is crucial to the success of both parties, yet economic uncertainty can cause unintentional rifts that can be difficult to overcome.
5 Ways Technology Can Shield Licensing Businesses from Tariff Challenges
In response to the impact tariffs are having on businesses, some companies are putting off investments in technology. However, with the ever-increasing capabilities of automation and AI, a technology investment is arguably the very thing licensing companies need to counteract tariffs.
Simply put, companies need to make adjustments based on what they can control. And while other workarounds, for example swapping out materials or sourcing them from different countries, can easily be negated by the enactment of more widespread tariffs or retaliatory measures, investments in operational efficiency will pay off regardless of geopolitical shifts.
Here are five ways investing in licensing software can help licensees and licensors survive—and thrive—amid tariffs.
1. Automate overhead
Manually tracking rights, royalties, and usage restrictions is a time-consuming and resource-intensive endeavor for both licensees and licensors. Licensor-specific statement generation can be tedious and non-compliance with formatting can result in unnecessary back-and-forth. If an audit is underway, preparation and review increase administrative time spent on both sides exponentially. These are all overhead costs and activities that detract from a company’s core revenue-generating business.
Implementing software that can automate these repetitive tasks allows organizations to focus on innovative ways to capitalize on licensed properties instead of spending time on administrative functions that shrink margins even further. By simplifying rights and royalty calculation, reporting, and processing, licensees and licensors are able to maximize profits by minimizing overhead.
2. Avoid overpayments
Since many licensees don’t have visibility into their data or the ability to make ongoing complex calculations, they take costly measures to ensure they don’t come up short in their dealings with their licensor partners. These include intentionally overpaying royalties by as much as 15%; maintaining a contingency fund; forgoing credit for discounts, allowances, and chargebacks; and missing opportunities like joint branding, sets, and kits that could open new revenue streams but are difficult to track.
With tariffs threatening to cut into profits, licensees need to make sure they are preserving cash on hand while positioning themselves to make the most of the properties they license. Rights and royalty management software eliminates overpayments, freeing up cash to pursue new opportunities.
3. Inform strategy
It’s difficult to identify trends and make strategic decisions by slicing and dicing data from spreadsheets. This often results in guesswork that can put licensees in particular in a compromising position.
Today’s software solutions leverage the power of AI to analyze data and create predictive models to better inform strategy. Dynamic dashboards provide visibility into rights, payment terms, and contract restrictions, helping licensees keep an eye on commitments. They also provide actionable insights, such as which products may be falling short of minimum guarantees or key numbers to support forecasting.
4. Embrace Innovation
Licensees and licensors alike continue to invent new ways to monetize properties. Yet licensees are often reluctant to explore opportunities like joint branding and bundling products into sets or collector’s editions because the complex royalty calculations are practically impossible using spreadsheets. By the same token, without technology that is purpose-built to handle licensing, licensors may be hesitant to explore more granular restrictions to property use, thereby limiting revenue opportunities.
Licensing software is designed to handle complex rights hierarchies, deal terms, and royalty structures, allowing licensees and licensors to dream big.
5. Improve partnerships
As we mentioned earlier, the symbiotic licensee/licensor relationship is crucial to success. Yet when times are tough, the two sides can find themselves at odds. The best way to bridge this gap is through clear and transparent communication. By demonstrating solid operational processes, licensees are able to secure more and better properties. In light of tariffs, negotiations will be key to making win/win deals.
On-demand access to analytics and reporting helps inform forecasts and negotiations, instilling confidence that both parties are dealing with each other fairly. This lays the foundation for stronger partnerships that will withstand the test of time.
How FADEL Can Help Licensees and Licensors Navigate the Troubling Times of Tariffs
FADEL IPM Suite is a comprehensive platform that supports both inbound and outbound licensing, enabling licensors and licensees to manage rights and royalties from the same robust system. It’s trusted by some of the world’s top licensors, including the leading global licensor, as well as Hasbro, Marvel, and Bandai Namco.
Uniquely designed to streamline licensee/licensor interactions, IPM Suite comes complete with out-of-the-box licensor-specific royalty statements for major licensors including Disney, Marvel, Hasbro, Bandai Namco, Warner Bros., Mattel, Viacom, Universal, Pokémon, and Nintendo, saving days on individual report customization.
Leveraging AI and automation, IPM Suite simplifies complex processes and delivers measurable results.
Licensees using IPM Suite experience:
- 20% savings in royalty overpayments
- 50% reduction in royalty processing time
- 68% reduction in audit efforts… from months to days
Licensors benefit from greater control of their IP:
“We chose FADEL to implement an innovative rights and royalties management solution that will help us link and analyze our intellectual property rights information and more efficiently manage our royalty processing.” – Executive Vice President and CFO, Marvel
Features that Help Licensees and Licensors Gain Insights and Manage Costs
- Deal Management for deal creation, automated approval workflows, and an audit trail of terms for all agreements and amendments.
- Rights Management to keep track of complex rights models, rights clearance, collision checking, royalty rates, and payment rules.
- Royalty Management to calculate and validate royalties against contract terms and financial obligations. Includes out-of-the box reporting for top licensors.
- Forecasting to true up forecasts to actuals, manage business accruals, and inform negotiations.
- AI Analytics & Reporting for business insights based on trend analysis, predictive modeling, and machine learning.
Tariffs may be a necessary evil in the near term, but how you navigate them is a strategic choice. Contact us to find out how FADEL IPM Suite can cut costs and keep your licensing business on course.
For a complete list of features, visit https://fadel.com/ipm-suite-features/.