How much money should I expect from licensing my product idea?

Licensing a product idea can be daunting. Many factors have to fall into place: the strength of your idea, the innovation policy of a company and the protection of your idea or the intellectual property. For more info take a look at “How do I license a product“. But if all factors are in your favour you may have to possibility to license your idea and make some money from it.

How can you find the right company to license your product?

If you have a great idea you want to pitch to a large corporation, you first have to overcome the challenges of getting to the right people and having a patent. At that point, you can approach some companies. As an aside, it’s important to note that some companies are not open to product developers and simply do not accept submissions from any outside, independent inventors. Don’t be discouraged–there is always another competitor that may be open to new ideas. Think outside the box in search of other possibilities. Regarding the intellectual property, if you do manage to find a company willing to study your idea, in almost every case they would need this idea to be protected/patented. A patent is the only way they can be sure they can enforce protection. We also strongly suggest having utility patents instead of design patents since they are much more difficult to work around if another competitor tries to infringe. Design patents only protect specifics of the aesthetics; with just a few slight changes, it’s easy to protect a different form.

Down to business! What are the standard percentages from licensing a product?

When it comes to numbers, there are no standard percentages predefined within a specific industry. Each company will negotiate a different rate based on a calculation of expected units sold within a year. Average possible amounts are about 1%-10%. To give you an example of why percentages vary, this is how it might work. The calculated percentage is most likely based on a wholesale price. If your product has a retail cost of $1,000 per unit, it would not likely sell in the millions, so you might get away with higher than 5%-8%. On the other hand, if a product sells in the millions but wholesale is just $2.00, then the licensor would most likely try to lower that percentage to 3%-5%. A 5% royalty is the most common known. Keep in mind that these are just average numbers.

To decide your next steps, you need to answer two questions. Are you an entrepreneur or an inventor? Are you a risk taker or do you prefer to stay on the safe side? Your replies to these questions will help you decide whether to license your product or venture into managing your own company. If you have any more inquiries about licensing a product, contact us today for a free consultation.