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Select your local currency.

Estimate how much you think people will be prepared to pay for the product.

The retail price is the final amount that the customer would pay to own the product.

Be aware that the manufacturing cost in a retail distribution chain would typically represent between 20-25% of the final retail price to the consumer.

Typically manufacturing cost represents 20-25% of the final retail price as an approximate rule of thumb.

This calculator automatically defaults to 20%.

You can override the 20% default by scrolling this box.

Select the geographic areas where you think your new product idea would have the most appeal.

Select how you would like to calculate your areas.

Age and Gender - Allows you to select the ages and genders of your market.

Number per Household - Select the number of items you are likely to sell per household.

Which gender is the product aimed at?

Estimate the percentage share of sales that could be realistically achieved from your market potential.

The Potential Market has been calculated by adding the number of people from your selection of age, gender and geographic area.

This decision will depend on your circumstances whether you have the investment to self manufacture to whether you have the time to spend running your own business.

Definition

With self manufacturing you will be commissioning a factory to produce a batch of the product or to set up a factory. You will pay for factory production costs and then either sell to:

• A wholesale distributor.
• A retailer.
• Directly to the end user/consumer.

Pros

• Greater margin of profit per unit sold.
• Total control of sales and marketing.

Cons

• High Risk as start up costs will include potentially high cost tooling for production.
• Larger financial loss if sales are poor.
• Business knowledge required.
• Considerable amount of time and effort is necessary (you may have to give up your job!).

Definition

When self manufacturing you will be commissioning a factory to produce a batch of the product or to set up a factory. You will pay for factory production costs and either sell to:

• A wholesale distributor.
• A retailer.
• Directly to the end user/consumer.

Less of a margin, lower marketing costs.

Greater margin than selling to a Wholesale Distributor, but increased marketing expenses such as advertising, to make people aware of the product being sold by the retailer.

Even greater marketing costs but a large profit margin.

Definition

This is where you negotiate a licensing deal with a company that will manufacture and market your idea and pay you an agreed amount for each unit sold. This is known as a royalty payment. Below is a very rough approximation of the royalty payment paid to the inventor at the different development stages.

• Idea only (very hard to license)
  0.5 – 1% of production price.
• Prototype and patent pending/granted
  3 – 4% of production price.
• Product design, prototype and patent pending/granted
  4 – 10% of production price.

A product can be licensed to any company within the retail distribution chain i.e. either a manufacturer, distributor or retailer.

Pros

• The benefit of the licensing route is minimal investment risk.
• Licensee has an established distribution network and sales representatives to sell more units faster.
• You won't have to get involved with any business aspects (You won't have to give up your day job!).

Cons

• Less money to the inventor per unit sold.
• You have little or no control over the product.
• The company may not maximise their efforts to produce greater sales.

Different product sectors have historically varying business models. You could approach anyone in the distribution chain to see who would be interested in licensing the product. This has an implication on how negotiations are concluded.

The wholesaler could license your idea and pay for the manufacturing, before selling on to a retailer.

You could license the idea directly to a retailer, who would then have the product manufactured and sell it to their retail customers.

A manufacturer could license your invention, put it into production and then sell on either to a Wholesale Distributor or directly to a Consumer.

Factory Gate Price.

The factory gate price is the price the product exits the factory gates at. This price includes direct costs such as labour, raw materials and energy, and indirect costs such as interest on loans, plant maintenance and manufacturers profit.

This figure represents gross profit on the total units sold without time being a factor.
I.e. This is the total profit for the product life cycle, not an annual figure.