SHOULD I LICENSE MY PRODUCT TO MANUFACTURERS OR PRODUCE MY PRODUCTS MYSELF?
Three options that I think you have:
- Partnership of business based on your product
- Produce and sell your product yourself.
- Licensing your product to other businesses
Can I do both licensing and create my own line?”
- Yes you can. The two can work very well together
If your (investor) plans to run the entire business and have you just create the product, then you’ve won the product lottery!
My advice would be to have iron-clad contracts in place, ensuring that you retain ownership to the copyrights of all the product and a schedule of how you will be paid.
Get yourself an attorney for this.
Go into great detail with the partner and determine who is in charge of future investments of money needed.
HOWEVER, if the investor is just giving you money but wants you to run the operation, here are things to consider?
FIRST you have to ask yourself, “Do I want to be a manufacturer?”
Because essentially, when you create a line of products based on, you are going into the manufacturing business.
Suddenly, you have a job that has you wearing a lot of hats, and creating product falls to the bottom somehow.
It can take years to build up a sturdy list of customers that will order from you.
Shipping and Receiving:
Risk Taker: If your products don’t sell, you lose everything, and maybe more.
You have to deal with Quality Control
Creativity: Your product will become second fiddle, unless you have enough capital to hire people to do all of the above for you.
That being said, it is absolutely possible that you will have success, if this is what you want to do. And if you do, I would recommend that you make up a detailed, formal business plan, and in doing so, you will be able to better make a decision for yourself.
LICENSING YOUR PRODUCT
Licensing is a dream because, unlike manufacturing it yourself, your products are being produced by, sold by and paid for by someone else.
This means that if the product doesn’t sell, you lose nothing but time.
If you hook up with a solid company, you benefit from their long list of customers who are already to buy from them. Some licensees have thousands of customers they sell to, and they just plug our products into their sales channels. It would take us twenty years to get that many customers to buy from you directly!
Typically you get paid an advance, so if the product bombs, you still got paid something.
If the sales of your products are successful, the licensee will renew and you can reap the benefits year after year.
The best part in my opinion is that there’s no money OUT of your pocket, it’s without risk and without having to sell.
I’m not saying that licensing is easy, because it’s a lot work, too. You have to create the product, sell the ideas to the licensee, and then handle all the contracts and everything that comes after.
But licensing allows you to do what they do best: create product.
Let someone else do the dirty work of sales and manufacturing.
In the end, do what feels good to you. Always know what you’re getting yourself into.
Licensing can be complex.
First, make sure your creation is proprietary. "If you have a patent [or are in the patenting process], or you have some other way of making it exclusive, then your course [toward] licensing will look a little better,"
Check out the U.S. Patent and Trademark Office and PatentCafe for information on patenting your idea.
Ask an attorney for help with nondisclosure agreements and getting attorneys fees and other provisions in the contract, so you have recourse if the deal sours.
"Educate yourself as much as possible," and whenever you have questions, take those questions to an attorney you trust."
Before you seek out licensing partners, though, learn your industry standards--and what percentages you can expect from the final product sales. Research potential licensing partners, and have your radar on for anything fishy.
The fact is, the rate of inventors who successfully license their inventions is very low—much less than 10%.
You have to become an expert in the field to which your invention applies
Your credibility will be assessed by potential licensees partly based on whether you present a realistic analysis of the risks the licensee will have to deal with
Present like a Pro. Information you present to potential licensees should be provided in written form and in a PowerPoint presentation.
Get it Protected
It is rare for a company to sign a confidentiality agreement
Work closely with your attorney on what you agree to. What to sign?
Check to see if the potential licensee has the manufacturing and distribution capability you need already in place.
It would be good to find someone in the company that likes your item.
If company says no – analyze why and benefit by it.
It’s smart to approach more than one potential licensee to increase your odds for success.
These clauses allow for the agreement to be dissolved or penalties to be levied if the licensee doesn’t live up to certain requirements.
Exclusivity Clauses – Delicate issues – to protect you
Exclusivity ensures that the licensee will only be doing business with one licensor (at least within a certain genre or sub-type of work).
Because licensors want (and should) keep some control over their products and services, most agreements will place requirements on affiliation or sub-distributing.
Licensees must be diligent about fulfilling the requirements of their licensing agreements.
Generally, licensing agreements come with some sort of statement about product liability, as it’s in the best interest of both parties to have this spelled out as clearly as possible.
What are Typical Licensing Fees – (3% to 6%)
It depends on what you can negotiate but you can get some rough ideas by reading this link