Inventors: Cut a Killer Deal – How to negotiate a licensing deal

You’re in the door! You’ve almost made it! If you’re in the processing of negotiating a licensing deal with a company, then please read the following advice carefully.

First, know that the person with the most information is usually the winner. Knowledge is power, and it’s definitely leverage. So research the company you’re working with. Where do they stand in the marketplace? What are their strengths and weaknesses? Who do they sell to? Do they need you more than you need them? It’s important to know the answer – determine it through research. You should also ask the company about itself. You’d be surprised at what you can learn. Get the basic information you’ll need later, early on.

Make sure that you’re submitting your idea to multiple companies. If you’ve got options, you’ll be less desperate, and less likely to accept a weak deal.

Know what you’re looking to get out of a licensing deal. You need to be prepared to answer the company when they ask you. But in order to have a response, you’ll need to ask them a few questions first. One, do they want an exclusive? Second, how many units do they think they will sell? And finally, at what wholesale price do they plan to sell your product? These three answers will determine the type of royalty rate you ask for and the terms of the deal you select.  

I don’t recommend negotiating on the phone. Most people aren’t capable of doing so. Send a terms sheet over than clearly illustrates your desires. And in that first term sheet, ask for more than what you hope to receive. You’re going to have to make concessions – so why not leave some concessions that you’re more willing to make up for discussion? You want them to feel as though you’re giving up something, because they are too. And have answers for the terms you choose. Why do you deserve that royalty rate? Why is that channel of distribution most appropriate? Negotiation is all about giving and taking.

When they respond to your terms sheet, don’t flinch if they express surprise. Hold your ground. Basically, don’t let them see you sweat. The answers for the choices you’ve made will support you.

To be continued..

Stephen Key is a successful award-winning inventor who has licensed
over 20 products in the past 25 years. Along with business partner
Andrew Krauss, Stephen runs inventRight, a company dedicated to educating inventors about selling their ideas and the skills needed to succeed. You can ask questions and get advice on the inventRight forum, check out the resource center, and listen to the weekly radio show on inventing. Get In The News, list your invention to have media outlets find you for news stories.