How do I license a product?
As an inventor, industrial designer, innovator, or entrepreneur, are you researching and thinking about your options to monetize a great idea that you came up with? There are many ways to make money from an idea. One that many inventors seek is product licensing.
What is Product Licensing?
Product licensing involves selling your idea to a corporation or company that believes they can sell it and make a profit from it. You arrive at a business arrangement (a royalty agreement) where you, the inventor, give the company permission to manufacture your product. In return, they give you a percentage of each sale. This is called a royalty.
Why do inventors license their products? It really depends on each case. When you have a great idea you can do two things: venture into entrepreneurship and develop the idea yourself, or license it. When you do it yourself you have to: manufacture the product; manage shipping and logistics; produce marketing materials; maintain a website and social media; take the product to market; and secure sales. It may take years for you to get it to market, with no guarantee of success. The other option is to give the rights to a larger, established company that can use its existing leverage in the marketplace to find success with your product.
What are the pros of licensing or venturing?
The key benefit of product licensing is that you avoid the risks and challenges associated with product development and running your own business. On the other hand, you make more money if you sell the product yourself. Having said this, there is no one-size-fits-all solution. The decision to license depends on a lot of factors, including how experienced you are and your possibility of securing investment.
How much money should I expect from licensing my product idea?
Each product is different. The royalty percentage of each item is different as well. Most importantly, each company will negotiate in different ways. A company may offer money up front plus royalties, or may just offer a royalty payment to manage their own risk. Other important factors that inventors must consider are lifestyle and risk management. Some people need a safe job that pays the bills. Their licensing opportunity is just an extra something on the side; inventing may be something they do in their spare time and not necessarily a primary source of income. Other inventors have multiple inventions ready to be submitted and the kind of mind that would allow them to make a living from their many ideas.
Is it really worth licensing a product?
Will you get rich by licensing a product? Most likely not. But it will give you the experience and knowledge to know whether you should continue working on and developing your inventions. If a fast payout is what you hope for, the best case scenario would be finding a company to buy the intellectual property outright. You will get a lump sum but you will also be giving away your idea, allowing the company to continue the venture without you, with no future royalties to you. You have to decide which scenario is preferable to you.
If you have any inquiries about licensing a product, contact us today for a free consultation.