Three Steps to Selling Your Idea

Perhaps there is a keen mind for inventing–but very little of a head for business. Or possibly you’re proficient at both, but you’d like to focus your time and effort on developing ideas instead of launching a full-scale business. Fortunately, there’s a choice that suits your preferences perfectly: licensing your invention idea. Licensing is merely the procedure of selling your idea to a company that’ll develop it fully, dealing with all of the business-related tasks that launching a fresh product involves. Licensing may also be a great option for all those whose financial resources have become limited.

Just as there are steps to starting your own business, there’s a good way to approach licensing your invention. I break it down here into three main steps.

Step one 1: Gather Information Yes, it is the information age–which means the more information you’re armed with, the better off you will be. Licensing your idea is no exception. Before you even consider approaching prospective companies to market your idea, be certain you’re clear in the next areas:

  • Know your market. This implies gathering as much feedback as possible all on your own invention idea. Focus group testing, even among family and friends, is one great way. It’s also advisable to compile data on similar and competing products–info on what’s out there, what’s selling and who’s producing it, for instance.
  • Do some legal legwork. Go so far as you can to determine if your invention is patentable or if it could be produced without infringement on other filed patents. An initial patent explore www.ustpo.gov are certain to get you on the way. Also, the more info you can gather about regulatory issues or necessary legal steps, the better.
  • Consider production. Studying the production process can be hugely helpful, especially if your invention demands unique materials or unusual manufacturing techniques.

Step two 2: Make a Professional Presentation After you’ve gathered all of the relevant information, you will have to present it to potential licensors. Together with your most reliable tool–a three-dimensional prototype model–you should create a simple sell sheet to mention all the details you’ve gathered.

Your sell sheet ought to be a one- or two-page document that clearly states the next:

  • The problem, challenge or need the merchandise meets
  • The product’s features and benefits
  • Your product’s market
  • The legal status of your invention (ie: patent pending, copyright or trademark info)
  • It’s also advisable to develop an introductory letter to accompany your sell sheet, which introduces yourself, explains why you’re contacting the licensee, and sets a period when you plan to check out up.

    Step three 3: Pinpoint YOUR GOALS You’ve gathered and prepared your details. Now what? The next step is to look for the most appropriate contacts because of this awesome home based business opportunity. As an initial step, I would recommend you create a summary of at least 50 prospective targets. Much like any kind of sales, the more prospects, the better. It’s a numbers game, & most companies will turn you down for just one reason or another. Also remember that a far more focused list provides you far better results.

    So how is it possible to identify companies that may make an excellent fit? Whether it’s a consumer item, it’s as simple as a shopping trip around town. Visit a store where you’d be prepared to see your product sold and write down the names of manufacturers who produce similar products. You may even be familiar with a number of these companies from your own prior general market trends.

    Another way to recognize prospective manufacturers is to recognize the trade association that serves the industry where your product will fall. Visit their websites to check out member lists. Some trade associations list the manufacturers scheduled to demonstrate at their upcoming industry events.

    Online databases may also be an excellent resource. Local public business libraries tend to be associated with database systems that enable you to seek out companies in specific industries. And, from your computer, you can travel to www.hoovers.com , an excellent online database that delivers information regarding many large-sized companies. The website even allows you to find companies which have specific key words within their description.

    Step 4: Qualify YOUR GOALS Once you have generated your set of 50 roughly companies, you will want to prioritize them–or "qualify" them predicated on which can make a best match you as well as your product. There are many of things to consider when qualifying prospective licensees:

  • Size. Large companies are easy to recognize and generally have terrific distribution. However, small companies might stand to benefit more from your own invention–and often make smarter prospects. Small companies generally have less "in house" product development staff and so are less burdened by red tape and multiple layers of bureaucracy, which will make them easier to cope with.
  • Geography. When you won’t need to limit you to ultimately local companies, they do offer advantages. Companies in close proximity let you leverage any contacts you may have locally, and create face-to-face meetings (which is always valuable).
  • Similar products. The closer your invention matches a company’s already existing products (given that it is not directly competing), the more sense it probably produces them to take it on–especially if it offers them something that competes with a rival company.
  • Usage of a decision maker. The easier you can identify and directly reach your choice maker, the better your connection with a prospective licensor will be. (Note: if after several calls you can’t determine who the correct contact is–or speak to him/her–you’re better off concentrating on other targets.)
  • Company policy. Some companies’ policies for accepting submissions are more inventor-friendly than others.
  • Manufacturer reputation. Find out the business’s track record for dealing with inventors, and when possible get references from those who’ve gone before you.
  • Step 5: Make the Sale You’re now armed with information, presentation materials and a hot prospect list. How can you know you’re getting much? Understand there are no set rules or terms with regards to negotiating a licensing agreement. An ideal agreement is one which gives both you and the maker just what you want. Which means terms are completely negotiable and may vary dramatically.

    However, do keep carefully the following points at heart as you’re negotiating your deal. First, set realistic expectations. Basically, don’t expect a million-dollar deal–it’s doubtful you’ll retire after licensing your first product. Second, choose the gusto. Best for you personally, the inventor, is to get as much up-front cash, as high a royalty, and as high an annual minimum payment as possible. Of course, the maker will be gunning for less risk–which means less up-front payout, lower minimum payment requirements, and as low a royalty percentage as possible. But just what do these terms mean, and how will you get the very best deal for your invention idea?

  • Up-front payment. Here is the money that the licensee pays the licensor in advance, before development or sales even begin, for the assignment of the rights. This is often a outright payment, but mostly takes the proper execution of an advance against (future) royalties. How much up-front payment varies. However, it isn’t unusual for an inventor to get an up-front payment that covers the expense of her patent filing. Another way to come quickly to an agreeable sum is to base your payment on projected sales expectations for the first year.
  • Royalties. They are the payments designed to the licensor predicated on a share of the licensee’s revenue. So, in the event that you make a 2% royalty, which means you’ll receive 2% of the wholesale price of every unit sold. The normal royalty range will run from 2% to 5%. Again, the further along or even more proven the invention, the less risk for the maker and the much more likely you’ll receive an up-front payment or more royalties. From my perspective, the royalty may be the most important part of the agreement, because if the marketplace responds to the merchandise, the manufacturer can do well and the inventor can earn an excellent revenue
  • Annual minimum. This can be the contractual term that will require the licensee to pay the licensor the very least amount of royalties, regardless of the actual royalties due from sales. If you ask me, the objective of annual minimums is to make sure that the maker places sufficient effort and resources behind promoting the merchandise. Therefore, I really believe that annual minimums are most significant in the original years of the agreement–when the merchandise is being launched–to make sure that the licensee adequately prioritizes this item when deploying sales resources.
  • Exclusivity. Most manufacturers would want to have exclusive rights to distribute the merchandise globally. However, that is subject to negotiation. Based on each party’s motives, the agreement could actually divide up the markets in lots of ways.
  • It is important to remember that these four components are inter- meaning the more you enter one area, the more you may have to concede in another. Much like any negotiation, both sides will probably make concessions. Decide which of the components will best meet your short- and long-term needs, and negotiate from there. There are many books offering techniques in negotiation. The most salient tip I could offer is by using a "non adversarial" approach where your goal is to create terms that certainly are a win-win for both parties. All the best!

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