How To License Your Idea, Invention or Product
Is the licensing model right for you? Read our answers to the questions inventors ask most about licensing.
If you have additional questions, please click here to set up a phone call with a member of our team.
What is licensing?
There are different kinds of licenses. Essentially, and especially for our purposes, licensing is the renting of an idea. When you license your idea, you give a company with a lot of powerful resources the privilege of bringing it to market in exchange for compensation, aka royalties. The terms under which you extend this privilege differ, because no two licensing agreements are the same. Royalties are based on a negotiated percentage and paid out per unit sold on the wholesale price, typically four times a year. Royalty rates generally fall between 3 and 10 percent. Consider the huge volume large companies are capable of doing — a really nice royalty can add up fast.
Essentially, when you choose to license an idea, you tap into the unlimited finances large companies have. You get them — aka their manufacturing, sales, marketing, and best of all, distribution team — working for YOU. If they’re in 20,000 stores, guess what? You can be too.
Why would I want to license my product for a royalty when I could manufacture it on my own and keep all the profit?
Great question. Let’s put things in perspective. Product development takes a lot of time, not to mention resources. There’s also manufacturing, distribution, sales, and marketing to consider. Starting any kind of business is an enormous undertaking, let alone a product-based one. (Stephen knows: He started and ran a very successful guitar pick business for a few years.) When you license your idea instead, what you’re really doing is finding a partner who will do the heavy lifting for you.
The way we see it, for many inventors, licensing is an ideal partnership. You no longer have to raise capital. You no longer need to fight to take away shelf space from another company. You no longer have to go through the lengthy process of establishing relationships with retailers. You no longer have to concern yourself with cash flow, which is the undoing of so many new businesses.
Better still? You don’t have to quit your day job to do it. You can live anywhere. (We have students come to us from all over the world.) You can focus on coming up with more ideas, if that’s your thing.
These are all huge pluses. There are more. Licensing is also a faster route to market, which is fantastic, because speed to market is so important these days. It’s also a form of protection in and of itself.
- Retailers want to deal with companies that have 10, 20 — even hundreds of products. Many retailers don’t take one-product companies seriously and are very concerned you’ll have enough cash flow to deliver consistently and on time.
- When you start your own company to bring an idea to market, you will most likely need hundreds of thousands of dollars to be successful. That’s even when your product costs only pennies to make! After decades of licensing his ideas, Stephen founded an innovative guitar pick business in part because he wanted to experience what it would be like on his own. His picks cost about eight cents a piece to manufacture and sold for almost 90. Although the picks were a hit from the start, he still needed more than $200,000 to get the business off the ground — and says he could have used an additional $100,000 to better market his innovations.
Your licensee takes on the risk of bringing a new product to market, not you. You capitalize on the company’s experience, legal department, and size when you license your idea. We love that licensing is low risk. You can become an entrepreneur, you can see your idea realized — all without having to mortgage your home.
If you don’t have the time, money, or interest to start a business to bring your idea to market, you should seek out a licensing deal.
Why would a company pay me for my idea? Isn’t it just going to rip me off?
Most companies do not steal ideas. Do they sometimes work around them? Yes. Companies that have embraced open innovation want to work with independent inventors, not rip them off. Companies don’t want the bad press. They don’t want to be sued. It’s not worth it. In all of the years we’ve been in business, not one of our students has had an idea stolen from him.
You do need to be a professional, though. You need to be smart about protecting yourself. There are so many ways to do so beyond filing intellectual property. You need to learn how this game is played and the language of licensing. If you are reasonable, if you are someone companies want to work with — you won’t give them a reason to try to work around you. We will teach you how to outthink and act any and all competition.
Don’t I need a patent?
No. We teach our students how to license their ideas using intellectual property strategically. More often than not, filing a provisional patent application (PPA) is enough to license an idea. In fact nearly 95 percent of the licensing agreements our students sign are for ideas that have not been patented. Patents don’t sell ideas. Benefits sell ideas. Unfortunately, many patents are filed out of fear. We think that’s a mistake. We strongly believe in the importance of testing the market before investing in an idea. Patents are expensive. Beyond that, they’re just not needed.
If you’ve already filed a patent application, that’s okay too. We’ll help you fully utilize that asset. However, you won’t need to take that financial risk again using inventRight’s approach to licensing.
I don’t know how to prototype my invention. I’m not a sales expert, either.
The only thing you need to become an expert on is your idea. We want inventors to realize they’re not licensing their patent or a prototype, not ever. Benefits are what compel companies to license ideas. We will teach you how to create highly effective marketing materials, like your sell sheet, that will do the selling for you. We will teach you how to prototype your idea inexpensively so that you can film a killer infomercial, which you’ll include in your sell sheet.
Sometimes building a more refined prototype is necessary. But it makes so much more sense to invest in one after a potential licensee has expressed sincere interest — not before. Licensing is a numbers game. You can’t afford to prototype and patent every idea you have. If you work at progressing through each step in our system, you will start contacting companies in no time. You will discover how easy it is to communicate with them.
I’m looking for a licensing agent. Why don’t I just hire one to license my idea for me?
There’s no such thing. Please be wary of companies promising to do it all for you. You need to become an expert on your idea. The reality is no one else is ever going to be as excited about it as you are. You will need to champion it across the finish line. Our approach is all about teaching you how to do that, so you can do it again and again. We want to empower you with knowledge. We know anyone can do this. It’s very learnable. We’re here to help and your coach will guide you every step of the way.