Licensing Royalty Calculator

Common Licensing Questions

What is Licensing?
In basic terms, licensing means taking your idea, your “intellectual property,” and giving someone with a lot of powerful resources the privilege of using it for a price. You set the terms by which you extend this privilege. In return, they give you a rent check four times a year. This is also known as a “royalty” check. These quarterly royalty checks, and sometimes one-time advances on future royalties, are the means by which you will generate income when you license your products.
Why would I want to license my product for a 3% to 10% royalty, when I can manufacture the product on my own and keep all the profit?

This is a common question that requires a several part answer.

When you license a product to a manufacturer, they’re going to advertise it, market it, manufacture it and put their money into the project. You don’t need to raise money or run a company, and that’s a pretty big plus!

Another great benefit of licensing is that the manufactures you’ll be contacting already have a network of retailers that they can plug your new product into. If you start a company on your own, not only do you need to raise money to start the company, you have to start from scratch and make new relationships with retailers so you can get your product into their stores.
Retailers want to deal with companies that have ten, twenty or even hundreds of products. Many retailers don’t take one-product companies seriously and are very concerned that you’ll have enough cash flow to deliver on a consistent basis and on time. When you license your product, you’re avoiding these obstacles to success.

Initial Investment:
When you start your own company and manufacture a product on your own, you will most likely need hundreds of thousands of dollars to manufacture market and distribute your product even if your product only cost pennies to manufacture. You need big money to market, advertise, distribute, manufacture and pay employees or contractors.
When you license your product to a manufacturer, they will have financial resources you could never have. Also, they may have ten, twenty or even thirty years of experience in the industry of your invention. That’s a good combination, and that’s the power of licensing and teaming up with a big company!
With licensing, your licensee (the manufacturer you rent your idea to) invests all their money and takes all the financial risk. If for some reason they don’t perform, you get your invention back and you can then license it to someone else.

Time Investment:
If you have two to six hours a week, you have enough time to license your products. You can have a full-time job, a business or be very busy with family affairs and still find the time to license products.
If you start your own business and manufacture a product on your own, you’re tied into that business for a bare minimum two years. And if you want to be successful, you’ll need to work eighty-hour workweeks if you’re serious about getting your product out there and onto store shelves.
When you license the product, the manufacturer handles everything that’s required to run the business, so you’ll have the free time to go about your daily life. Hopefully you’ll spend some of that free time working on licensing your second product so you can have a second royalty check coming in.

Why should a company pay me for my new product idea? Will they just steal my idea?
It’s very rare that a company rips off an independent inventor. There are a few reasons for this. One reason is that companies in general don’t want the liability and financial damages they would incur if you can prove they ripped you off. Also, they don’t want the bad press. What company would want a news story about how they ripped off an independent Inventor’s idea to show up in the paper? No company would want that!
Now, does that mean inventors never get ripped off? Of course, it does happen from time to time. However, if you’re knowledgeable about creating a paper trail, by using tools like an inventor’s notebook and provisional patent applications to protect yourself, you can dramatically reduce your risk of having a company steal your idea.
Big companies are actually more afraid of you than you should be afraid of them. They have more reason to be paranoid about being falsely accused or sued than you should about them ripping off your idea. Over our ten years here at inventRight we’ve never had a student tell us they had their idea stolen.
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