You're an inventor with an exciting new product, right?

Of course.

But, what is the best path to finally making money from your invention: venturing it (DIY) or licensing it for royalties?

It may be the most hotly debated question among inventors. Which do you think is the better path?

In this post, I'll give you my views of venturing versus licensing and let you weigh the trade offs with each.

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Want to learn about the keys to licensing your invention?

Click on the blue button below now to grab your FREE copy of – Keys to Licensing Your Invention – PDF now.

Want to attend a FREE live, interactive webinar all about licensing?

Click on the orange button below to attend the next FREE – License Your Invention for Royalties – webinar.

Get answers to all your licensing questions during the webinar.

Venturing Your Invention

Definition: venturing your invention means building a business around it from the ground up. This means that you will manage and take responsibility for all aspects of a product-based business: manufacturing, importing, packaging, inventory and warehousing, shipping, distribution, sales and marketing to retail stores, online and other channels.

3 common myths about venturing:

  1. You'll make much more money venturing your invention than licensing it
  2. You just need to take care of the patenting and marketing – delegate all the “nitty gritty” to others
  3. Retail stores are clamoring for new products

The reality is that whether you are an independent inventor or the CEO of Proctor & Gamble, a product based business is laden with expenses on many levels and the consumer marketplace is extremely competitive. That is why over 80% of all new product launches every year fail to achieve success.

Regarding 1 above, your top line revenue when venturing your invention will be much greater than for licensing. But what matters most to your success is your bottom line review – your net profit – after all the expenses have been paid. An extremely well run product-based business might have a net profit margin of 10-15% (might). Let's say your gross sales are $1 million and your net profit margin is $100,000 (10%).

That doesn't seem too bad, does it?

But, what happens when your costs increase by 10% (when, not if)? Then, your profit goes to $0 unless you raise prices, cut costs or a combination of both. Regarding 2 above, you will certainly have others involved, but much will fall on your shoulders, so you will be working long hours.

Also, retail stores are indeed interested in new products, provided they turn quickly or sell through well. If your product is untested in the marketplace, then the retail stores will be brutal with returns if the product sells slowly – which is very common in the beginning.

Yes, it is possible to make a lot of money if you venture your invention. But, you must navigate through all of the above challenges on a daily basis.

Licensing Your Invention

Definition: licensing your invention means that you license your patent(s) to a large manufacturer in exchange for being paid a small royalty percentage on all net sales of the product. This means that the manufacturer or licensee will take responsibility for all the operational aspects of the business: manufacturing, importing, packaging, inventory and warehousing, shipping, distribution, sales and marketing to retail stores, online and other channels. And they are much better at managing all of this than you are.

3 common myths about licensing:

  1. You'll make much less money licensing your invention than venturing it
  2. At the end of the day, you may not get paid a dime!
  3. Licensees will sign a deal and then just “sit” on your product – never going to market with it

I'll speak to 2 and 3 above first. Licensing agreements are legal documents and you will get paid if the product sells in the marketplace. License agreements stipulate that you are paid on net wholesale sales – not on profit. This is good, because if there was no profit (or very little) you'd get paid little or nothing.

So, you will be paid and it is legally enforceable.

Regarding 3 above, it is almost always a myth for a simple reason: license agreement have a provision for a minimum annual royalty(MAR)  to be paid to you each year, even if sales are much lower than expected. The board of directors will not smile upon the corporation paying an inventor $50,000 each year for a product that they aren't selling and garnering profit on.

Regarding 1 above – here are my thoughts and experience.

A large manufacturer typically has distribution allocated into thousands of retail stores. Even with a 4 – 5% royalty, if the product is selling in 5,000 or 10,000 store fronts, the royalty payments to the inventor can be quite lucrative. Furthermore, whereas an inventor working to venture his product might take 6 months to 1 year just to get onto shelves at Target or Walmart, the manufacture already has that distribution and can move your product very quickly.

In summary, there is no guarantee that any license deal will be highly lucrative. But, a deal with a large manufacturer with a large “footprint” into many thousands of store fronts can be very lucrative for everyone – including the inventor!

Stay tuned!

___________________________________________________________________________________________________

Want to learn about the keys to licensing your invention?

Click on the blue button below now to grab your FREE copy of – Keys to Licensing Your Invention – PDF now.

Want to attend a FREE live, interactive webinar all about licensing?

Click on the orange button below to attend the next FREE – License Your Invention for Royalties – webinar.

Get answers to all your licensing questions during the webinar.