A few final tips to remember when negotiating a licensing deal.
It isn’t personal. Try analyzing the deal from the other party’s perspective. Ultimately, you both will need to work together to win. Be flexible. You may think that what they’re asking for is outrageous or ridiculous, but it might not be. Don’t assume anything.
Minimum guarantees are powerful. Everyone always obsesses about the royalty rate, but if your product doesn’t sell, it doesn’t matter how great your royalty rate is. Try to create a minimum guarantee for the first, second, and third year. Increase the minimum number of sales they must make to keep the agreement each year. You’re reducing risk for them, but also risk for yourself.
Be practical. Make sure whatever you ask for is realistic and appropriate. Instead of an advance upfront, consider asking the licensee to pay for your patents (and any future ones). You’re trying to create a great working business relationship.
Be able to walk away from the deal at any time. Don’t intricate yourself so deeply you can’t get back out without serious repercussions. The best way to do this is to rely on other options or other deals. Maintain some sense of leverage. Negotiation is about power. If you let the balance of power swing horribly out of whack, you’re much more likely to be taken advantage of, or accept a poor deal.
Remember, each party should walk away from the table having won something!
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.