If You Have a Garage Full of Inventory You Can't Sell, Try Licensing

Last week, I wrote about how to avoid ending up with inventory you cannot sell. But let's say that's exactly what you have: A garage stacked with boxes of product you thought consumers needed, but have had trouble getting off your hands. In my experience, this is not uncommon.

For more than 15 years now, I've been hearing a version of the story below.

You have this great idea for a new product you believe everyone wants. So you file a patent application, which, after it issues and all is said and done, ends up costing you about $15,000. You work with a manufacturer overseas to produce the minimum amount required for an order, which runs you between $20,000 and $50,000. You pay a professional to help you set up your website and begin selling on Amazon, which you perceive to be a low-cost course of action. All in all, by the time you're in business, you've made a major financial investment.

But without the marketing to back it up, the reality is, finding your product on Amazon is like a searching for a needle in a haystack. As the years go by, you become frustrated. No one is buying. Your spouse would like to park the car in the garage. You feel like a failure. In the beginning, your friends and family agreed, it sounded like such a great idea.

To say the least, trying to bring a product to market on your own is trying. The amount of money and time it took me to self-fund a successful guitar pick business shocked me.

The good news is: You can recover from this. There is another way -- a Plan B.

You've already established perceived ownership over your idea. Potentially, you have sales.

Why not try to license it?

What is licensing? Licensing is similar to renting. In exchange for the right to manufacture, distribute, and market your product, the company that licenses it agrees to pay you a percentage (otherwise known as a royalty) of each unit they sell on the wholesale price.

So, where does your product fit in? You are looking to slide your concept into a company's current line -- the more seamlessly, the better. Think of your licensee like your perfect partner, in that it's equipped to take over all of the aspects you're struggling with, like retail.

Because you've already put in some of the work, you're poised to negotiate for a higher royalty rate. By that I mean, between five and eight percent. (Royalty rates are typically between three and seven percent for simple improvements made to existing consumer products, which are what hit my desk as a licensing coach most often.)

The fact that you have inventory you've been selling online takes away risk, and taking away risk is crucial to securing a licensing agreement. It's pretty simple: When you take away risk, you make it easier to potential licensees to say yes. And in your case, you have proof of demand -- at least some of it. Don't feel badly. Marketing is difficult and time-consuming. You haven't had the resources you need to make your product a success. But your licensee will. Most entrepreneurs underestimate just how difficult cultivating demand is. Design firms, Fortune 500 companies -- they struggle with marketing too.

The fact that you have a physical product they can use to run tests with, like showing it to retailer or stocking a small amount in a brick and mortar, is advantageous. And if you have testimonials from people who have purchased and liked your product, those are beneficial as well.

Do you know what's even smarter? Running a test yourself. Ask a few local retailers if you can place your product at point-of-purchase. Share the results with companies you think might want to license your idea. If they can duplicate what you've just done on a mass scale, you could potentially have a very profitable product. Having positive sales data is yet another way to take away risk.

So, why not give licensing a try? What do you have to lose? Reach out to potential licensees to share with them what you've done and explain that you're now looking for help -- that you want to license your idea.

They may be able to take that inventory off your hands. Which will allow you to park your car in your garage!

The next time you have a great idea, consider licensing from the beginning. For small improvements made to existing products, it's often a great fit. I've been writing about the licensing lifestyle on Inc.com for two years now: All of the information you need to succeed is right here.

Originally published on Inc.com October 7th 2016. 


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