How to make money off your invention without building it yourself: When's a good time to license it out?
So you've invented the next big thing, now what? Most of us struggle to properly assemble a bed from IKEA, let alone put something into production. You have to get a patent, build prototypes, network with suppliers at trade shows, negotiate with manufacturers...the list goes on and on. It’s the rare entrepreneur who can do all of that and take their invention from inception through production. But for those who have a full-time job, kids, and other responsibilities, this can be a huge struggle. Thankfully, there are some other options!
Some background on your options
When you're trying to get your invention built and into the market, you can either sell it or license it out to manufacturers. If you sell, you can say goodbye to all of the rights to your invention. But that's not necessarily bad news! Although it's no longer yours, you might be able to get a lump sum for the sale. On the other hand, licensing your invention “rents” out your design to a company for the rights to produce it for a certain amount of time. Companies usually pay royalties on sales and you still own your design. Although these might be good options, the focus of this post is licensing your invention with the least amount of time and energy spent on your end.
There are a couple of choices for licensing
Let’s be clear: If you want to license your invention on your own, it's going to be a lot of work. You're going to have to rub shoulders with companies at trade shows, market your invention whenever you can, and contact as many people as possible to find a manufacturer that's willing to take you on. More importantly, you’ll often have to demonstrate that there’s a market for your product, typically by making sales. Not only does this cost money but it will also cost you something even more valuable: your time.
Another option is submitting your invention to a company like Lambert & Lambert or Enhance Product Development. These companies are both middlemen that provide services like competitive product market research, presenting at trade shows, negotiating with manufacturers, marketing, and eventually getting your invention into production. Lambert & Lambert have an initial $199 fee to evaluate your invention, but then don’t charge you anything until they get your product to a manufacturer to sell. After it's in production they take 25-30% of your royalties. However if your product doesn’t sell, the $199 will be your only cost. Enhance Product Development is basically the same idea except you have to contact them for an initial quote and they only take 20% of your royalties. These are just two examples, but there are numerous companies that with similar business models.
A few other resources
It's probably good to start off your journey by looking at websites like Invention Partner for some background information on the invention process, patent licensing, etc. This isn’t required, but understanding the basic parts of the process will help you in the long run.
You should also do some research on Thomas Net to see which companies manufacture products in your invention's industry. After making sure you have all of the necessary intellectual property protection needed to keep your idea safe from those who can reproduce it (patents, trademarks, NDAs, etc.), it might be good to reach out to the companies you find to see if they're interested in hearing your pitch for the product. It’s possible that they’ll agree to manufacture it for you. If not, they might be able to connect you to someone who will.
Finally, there’s MAGNET’s Incubation Center! We have the resources to help you develop a working prototype with our in-house engineers, figure out your go-to-market strategy, and even coach you on how to pitch to manufacturers or investors. Whether you want to find a manufacturer to build your invention or put it out into the world yourself, we can help.
See how MIC can help with your invention here!
Licensing is just one of the many ways to bring an idea into commercialization, and there are tons of resources that can benefit you every step of the way. I’ve hit on a few here, but one of the best things you can do is make sure you’re well and truly informed before committing a lot of time, money, and effort into a project. Do your research, talk to as many experienced people as you can, and before you know it you might see your idea on the shelves. Good luck!