1. Make and sell it yourself = Manufacturing
2. Let someone else make and sell it for you and they pay you royalties (money) = Licensing
3. Make and sell it yourself to prove it sells, then license it
4. Sell it outright for one large sum of money
Which way is right for me?
That depends on your product, your goals and you!
What if I want to manufacture it?
You’ll be in control of your product. You can decide where it’s made and what it looks like and you can make money from it. But, before you start earning money, you’ll have to pay for the materials and equipment to make your product. You pay for everything else too: people, packaging, storage, shipping, online expenses, legal costs and more. Sometimes you have to raise capital (money) before you even begin making it. You are the one responsible for making sure everything runs smoothly and that your product sells.
Can I come up with an idea and let someone else make and sell it for me?
That’s called licensing. You come up with an idea, make a sell sheet and protect your idea, and then you show it to companies who can manufacture and sell it. They’ll probably change your invention to fit what they can make and sell. Once you and they agree to how it will all work and how you’ll be paid, both of you will sign a contract called a licensing agreement.
How much will I be paid if I license it?
Sometimes you get an advance, which is money the company pays you when the licensing agreement is signed and they have their first sale. Then you collect royalties, which is a portion (percentage) of each sale. Royalty rates are usually 1-10% of what they get paid, so that is 1-10 cents per dollar.
That’s it?!! Why don’t I get paid half? It’s my idea.
Whoever manufactures the product has to pay for a lot of other things too: the materials to make it, packaging, shipping, people, legal fees, ads, online expenses, equipment and more. That adds up to way more than half the cost. What they are sharing with you is from the profit they make.
Will I make a lot of money?
Sometimes an inventor makes a lot of money and sometimes they don’t. There are several variables involved: Is it a one-time or repeat purchase? Will it sell business-to-business (B2B) or business to consumer (B2C)? How much does the product cost? How high is the need for the product? Are there enough benefits to make a lot of people want to buy it? Is it a fad or long-term product? What’s the average life length of products in your specific industry? What are the terms of the contract? Does your contract have minimum guarantees?
What if no one will license my idea but I still think it will sell?
You can manufacture it yourself for a while and prove that it will sell. Once you have shown your product sells, manufacturers might be willing to license it from you, or they might want to buy your company.