Imagine a travel company that advertises a two-day scenic 500 mile train ride through the Great Smokey Mountains for $300. When you ask for schedules, towns connected, details of the train, you receive the following answers:
- We don’t actually have the schedules in place yet
- We are still working on the specific route
- We have bids out for trains
- We haven’t laid the tracks yet
The train ride no longer seems so enticing; it is merely a vision, not a reality. Few people will risk money on a vision.
Welcome to the world of inventing!
Much like the visionary train voyage, it is very difficult to find investors or financial partners for a new invention; it is a work in progress, there is no production line, no distribution, no packaging or marketing in place in the beginning.
Put more succinctly: the odds of success as an inventor are extremely low. Your laser focus must always be on taking specific actions to improve your chances of success.
3 Keys to Inventing Success
1.Solve an Annoying Problem
Our lives are incredibly busy. We must continually juggle career, relationship, and family responsibilities and there never seems to be enough time in the day.
Annoyances are like speed bumps that slow us down. A woman hurriedly gets into her car and puts her purse on the passenger seat. As she drives away, she rounds a corner and her purse tumbles over spilling all of its contents onto the floor. Annoying!
The Purse Pouch provides a pouch between the seats to hold her purse for easy access and no more spills. Problem solved. The Purse Pouch is a successful ASOTV product because it solves an annoying problem. Your product has greater chances for successful if it addresses a key annoyance people must face on a daily basis.
2. Retail Sales Price is Less than $20
Many inventors estimate their product’s retail selling point in a logical, but flawed way: they know they can manufacture for $6, multiply that by 4 and then assume they can retail it for $24 and achieve profitable sales of their product. Maybe, but probably not.
Consumer products have a price elasticity of demand (PED) that is significant above the major price point of $20. Put another way, if the price increases 20% (to $24), the demand may decrease by 30%. Twenty dollars is a major price point because, psychologically, people tend to view spending less than $20 as “cheap” and anything above that price as “not so cheap” even if it is only $2 more.
In the direct response TV world (DRTV) it is all about $19.95.
If a product can be sold profitably at or below that price, the product can be successful, perhaps very successful, like my product the Wonder Wallet (small commercial here). If the retail price exceeds $20, it is very unlikely to sell successfully via DRTV or even in retail stores.
Instead, the inventor should ask, “what can I do to reduce my manufacturing cost to $4, so I can sell at retail for less than $20?” Certainly there are many items that sell at retail for more than $20, but for a new innovative product, any price above $20 means a much more difficult path to success.
3. Must Have a 4X to 5X Mark Up
A $20 retail item should cost between $4.00 and $5.00 to manufacture (preferably $4.00).
That includes all packaging so the product is ready to ship. Many inventors balk when they realize that, to achieve such a low cost, they cannot manufacture in the US, they must manufacture in China (or other low cost country). My question for them is simple: “do you want to be successful or proudly display that you are ‘made in America'”?
Price points and the resulting profits are crucial to success. If you cannot maintain a solid mark up (4X to 5X) with your product, neither you nor any other company will be able to achieve success with your product. I manufactured and sold my product for 8 years and I personally experienced the pain (and near failure of my business) because I was a bit below a 4X mark up.
The math is straightforward. Your product cost is $4.00. You wholesale it to Bed, Bath, and Beyond for $10.00. They retail it at $19.95 to their customers. You have a $6.00 gross profit on sales to BBB (enough to buy again at $4.00, plus have a net profit of $2.00). BBB has a $9.95 profit, enough to make it worth stocking and pay their overhead. Of course, customers must like the product and buy it in large quantities.