A simple definition of licensing is to rent your intellectual property, such as a patent, trademark, trade secret, algorithm or process, and partner with a company that has manufacturing capabilities and distribution to bring that idea to the marketplace with the ultimate goal of all parties making a profit.

Licensing has been a nice addition to our business model. It can be profitable and the design experience is a lot more fun when no clients are involved! But you have to have the right idea, that takes time and persistence! Inventors often get so wrapped up in their idea that they don't really have an objective opinion about whether or not it really has value (and what that value is).

When looking for potential licensee consider whether or not they have an extensive sales channels and are they known for being able to successfully market and sell their products. Because you want someone that you feel certain will actually sell your stuff successfully.

You will also need to support yourself, so do you have the cash flow to sustain yourself until your royalty arrives? Because it could be 6 months to a year or more before you start to see a return and only after you have negotiated a contract. Also, is the licensee reputable and trustworthy, and how do they really feel about your product and its ability to sell. You are ready to start a partnership, whether you officially call it that or not.

Ask a few questions:

Ask about the success rate of previous clients
Ask what the average cost for their clients is
Ask about specific examples of success that you can verify

How much of a royalty makes sense

Is the product expected to sell in high volumes or low volumes? As a general rule, high volume products (like what you might find at Walmart) will have lower profit margins and are generally in the 2% to 6% range. Low volume products (specialty items) usually have higher margins, and so therefore you can ask for higher royalties – like maybe 10% - 15%.

A few musts before you approach licensees

Is your idea salable, do your homework
Create a Sell Sheet
Maybe a 1 minute video
Maybe a 1 minute video
Create a list of manufacturers to contact 30 or so in the market you are playing in.
Apply for a Provisional Patent before trying to sell your idea.

Articles of Interest

Most Inventors Aren’t profitable

5 trends for inventing and licensing in 2021

Behind the Scenes With a Hardware Company Looking For Ideas

Using LinkedIn to Pitch Your New Product Ideas?

Why Licensing deals fall apart

14 Reasons Why Companies Reject Product Ideas For Licensing

Creating the Perfect Sell Sheet

Pitching your Invention

Licensing Fears

3 Ways to Slay the Risk of Bringing a New Product to Market

Simple Sell Sheets