SELLING OR LICENSING YOUR PRODUCT
Many Inventors Simply Want to Sell Their Product Outright or License it to an Interested Company. Here's How.
By James F. Riordan
Over the next few issues, we'll look at selling/licensing your product or technology. I suggest you take one step at a time, using your calendar book. Write down steps to take for every day of the week and then DO THEM. No man ever climbed a mountain in one leap. It always takes many little steps, taken one at a time. You will be well-rewarded for your efforts. If you have more than one idea, find the ones with the greatest potential and prioritize them.
Once you've made a priority list, begin with the following steps:
1. GET THE PRODUCT TO AT LEAST THE "PROOF-OF-CONCEPT" OR "MODEL" STAGE--In order to really interest a potential buyer or licensee, you should have a working model of the product. It does not have to be beautiful, although it is inherently more appealing and financially worth more if it is. The prototype should, at a minimum, do what you say it will do EVERY TIME, or serve to demonstrate that your technology is indeed viable. If you are planning on leaving the prototype with a company for review, be sure it will be durable enough to withstand abuse and repeated operation by heavy-handed engineers who will not treat it as well as you do. If your prototype will be too expensive or too large for you to build, then at a minimum you should have a set of PROFESSIONAL artist's renderings showing the product standing alone, the product in use, and exploded views, etc.
Anything less is rarely worth presenting because most business people and executives believe that if you have that much faith in the product or technology, you should risk the time and/or money to build the prototype or do the artwork. They question why they should risk everything on a product when you haven't risked anything. Trust me. If your product has real potential for success, take the time and money to build a prototype or develop a professional-looking presentation package before trying to present the product to a prospective buyer or investor.
2. DECIDE WHAT YOUR PRODUCT IS WORTH TO YOU--Before you approach anyone with a product you wish to sell them, you must have a realistic price tag on what you are planning to offer them. If you are planning on selling the product outright, you will generally get much less for it than you would in the long run if you licensed the patent, trademark, and your "knowhow" in return for a royalty paid over the life of the product.
Of course, a bird in the hand can be worth two in the bush, and a presently-unknown variable can suddenly come along, change the nature of the market or the pricing structure and kill the demand for your product before the patent runs out, in which case you may have been better off getting a lump sum up front. This is a gamble, and you must decide what will be better for you in the long run. Another factor which can limit your options to a royalty agreement is the company you present the product to refusing to even discuss an outright sale. Many companies will give you no choice. If you want to do business with them, it will be on a royalty basis or not at all!
Here are a few suggestions based on my own real-world experience when looking for an outright sale:
1. An unsolicited suggestion, if used by the company, for an unpatentable product improvement, is usually worth a "suggestion box" bonus value of $300 to $1,500.2. An unsolicited suggestion, if used by the company, for a potentially patentable product improvement, with no patent having been applied for, is usually worth a "suggestion box" bonus value of $1,500 to $3,000.
3. A patent-pending suggestion for a product improvement, if used by the company, may be worth $1,500 to $5,000.
4. A suggestion, if used by the company, for a product improvement which is covered by an issued patent, which is less than four years old or a trade secret, may be worth anywhere from $5,000 to $50,000.
5. A suggestion, if used by the company, for a Totally New product which is covered by an issued patent, less than four years old or a trade secret, may be worth anywhere from $5,000 to $500,000. There are exceptions and your idea may be worth more than a million dollars in an outright sale to a company which considers the product or technology vital to its growth.
A primitive method of determining the actual dollar value for outright sale purposes, of a product which is potentially patentable, patented, or a product protected by trade secret is to determine the total size of your potential market in actual numbers, then determine your potential sales in actual numbers. Take the number of reasonably expectable potential sales for the life of the product, multiply that number by the NET SALES PRICE (the price which the manufacturer will sell it to stores or distributors for), then take that figure and multiply it by five percent (5% or .05).
Then take that figure and multiply it times 50% (1/2) and you will have a figure which will probably be close to what a company will offer you in an outright sale, after all is said and done.
NEXT ISSUE: More on Licensing Your Product.
The above article was taken from James F. Riordan's classic book, HOW TO EVALUATE THE POTENTIAL FOR SUCCESS OF A NEW PRODUCT OR TECHNOLOGY. Riordan's highly-acclaimed, 36-point system is a valuable tool for inventors, product evaluators or anyone interested in the invention process. Each section is followed by a comprehensive questionnaire that can be used to evaluate your product.
The highly-recommended book can be ordered by contacting the James F. Riordan Company, 3110 Camerosa Circle, Cameron Park, CA 95682. The company can be reached by phone at (916) 676-4729. The book may also be ordered through the Dream Merchant, 2309 Torrance Blvd., Suite 104, Torrance, CA 90501. The phone number is (310) 328-1925.
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