The first question I posed in the last introductory blog was, is your product capable of achieving high volume sales? The capacity to achieve a high volume of sales is not only a highly desirable (if not necessary) quality for a prospective licensee, but also for you, the licensor. As the inventor of the product, you will receive the revenue achieved by the product’s sales, the percent of which is dictated by your royalty rate. The normal royalty rate for a licensed product is between five and ten percent.
The math isn’t difficult. Although five to ten percent isn’t huge, it’s substantive. Especially when applied to a product that is really going to sell. On the contrary, if your product is going to realistically sell only 2,000 units a year, the revenue you receive will be minimal. The time and energy invested into licensing a high-volume product and a low-volume product are the same. Why wouldn’t you want to create a high-volume product?
An inventRight member’s experience provides an excellent example of the importance of sales volumes. The gentleman had invented a beautiful drum key; the tool eliminated the painful and time-consuming task of turning the numerous screws on drum sets. It was an effective, intelligent product. Before coming to inventRight, he had spent nearly 10,000 dollars on a patent and several thousand on prototypes. He was familiar with our approach (which recommends neither of these paths), but having already invested the money, was simply interested in licensing. He bought the course, I mentored him, and he licensed his product. But two months later, he called me again, disappointed.
Although he was happy he had licensed his product and it had made it to the consumer shelf, he discovered that the tool would, at maximum, sell between six and eight thousand units a year. The product was very specific. It was going to take him at least a year to gain back the money he had originally invested. He admitted that if he had realized this truth, he would have worked on a product that could sell upwards of two hundred thousand units a year.
You CAN license products that are not going to perform high volume sales. If the benefit is strong, then a licensee may still be interested in your product for a niche market. But recognize that the benefits you will reap may be minimal.
inventRight: Helping to Bring Your Product to Market