THE BIG CHOICE
Will You Market Your Product and Start a Business or Will You License it to Another Company? Ken Tarlow Helps You Sort Out the Options.
By Ken Tarlow
Once your product is protected and you've developed a prototype, you'll have a big decision to make. You must decide whether you're going to create a business plan and be an entrepreneur who collects a team of people for the manufacture and sale of your product, or whether you'll remain strictly the "inventor" who sells his idea to a manufacturer who is looking to add to his product line. There are a number of factors to consider when making this decision.
LICENSE ADVANTAGES
* You won't have the headache of running a business.
* You won't have to put up the house as collateral to finance your venture.
* You'll have the time to invent more things rather than spending all your time with business matters.
* You'll have more time for your family and friends.
* You don't have to leave your current occupation to enter the risky world of entrepreneurship.
LICENSE DISADVANTAGES
* You'll have a smaller financial gain.
* You'll have no control over the final design of your product and the product's greatness could get "lost in the translation."
* There's a chance the manufacturer won't pay your royalty, in which case you must take them to court.
* You must continue to work another job or invent more products because royalties are not enough to live on.
* There's a chance the manufacturer will never make your product.
But what about manufacturing and marketing the product yourself? Let 's take a look at that option.
MANUFACTURE ADVANTAGES
* You have a greater potential for profit.
* You have greater control over how the product works and looks. It's your baby and you call the shots.
* Owning your own company has certain tax advantages. You can deduct many expenses as part of your business.
* You may realize a career goal of being your own boss (if this applies to you).
* You'll be able to direct a team and enjoy all the fruits of success.
MANUFACTURE DISADVANTAGES
* You'll have a greater financial risk.
* A business is full-time work--Saturdays and Sundays, as well. The job doesn't necessarily end at 5:00 anymore.
* You'll have less time for family. Be sure your family understands this and are behind you 100 percent.
* It's hard to start with one small product. You need a family of products.
* If you are by nature introverted and have a hard time getting along with people, you many find running a business to be a painful experience.
While the above points must be considered, you should also look at how royalties affect the picture. A decent royalty to receive on a licensed product is five percent of the wholesale selling price. At first glance, this seems like a rip-off. The manufacturer is getting 95 percent of the wholesale selling price and that often seems like Highway Robbery.
However, when you look at the five percent of wholesale in relationship to the manufacturer's net profit (the money left over once all expenses are paid), the picture changes dramatically. The manufacturer's net profit is usually only 15 to 20 percent of the wholesale selling price. So your five percent royalty equals 25 to 35 percent of the manufacturer's net profit.
The manufacturer spends all the money and takes all the risks and you sit home and collect 25 to 35 cents of every dollar he makes. That's not so bad, is it?
Of course, the Big Choice is YOUR choice. Consider the advantages and disadvantages carefully before making the choice that's right for you. Best of luck.
Ken Tarlow is president of Tarlow Design, a full-service product development company that helps independent inventors design, prototype, patent and license consumer product ideas. He has developed more than 300 consumer products worth over one billion dollars in retail sales. Tarlow's office is in San Rafael, CA. He may be reached at (415) 457-6428.
The above article was excerpted from Tarlow's MIND TO MONEY, a cassette tape/workbook package that can help you develop a new product from the idea stage to the marketplace. MIND TO MONEY may be ordered from Dream Merchant at $59.95 plus $4.95 CA sales tax and $5 shipping and handling ($69.90 total). Send orders to the Dream Merchant, 2309 Torrance Blvd., Suite 104, Torrance, CA 90501.
 |
|
 |
|
 |
