Licensing shifts the investment and financial risk to the manufacturer, gives the inventor access to an established company's industry networks and route to market, and can build the product's reputation faster than going it alone, while legal costs are often covered by the licensee.
Before approaching companies, an inventor should have their IP protected (patent and/or registered design where applicable), a professionally developed design, and ideally presentation material or a prototype, companies expect to see genuine investment in the idea before they'll consider a licensing deal.
Royalties are calculated as a percentage of the wholesale price (not profit), so the cost is effectively passed on through the retail price. Payments are typically made monthly or quarterly, and many agreements include a minimum guaranteed royalty regardless of sales, plus an optional upfront advance payment
There are three main types: an exclusive licence, where only one company has rights to produce the product; a sole licence, where one company and the inventor both hold rights; and a non-exclusive licence, where multiple companies (and the inventor) can produce the product simultaneously.
A licensing agreement is a contract between an inventor and a manufacturer, where the manufacturer produces, distributes, and markets the product on the inventor's behalf, in exchange for the inventor receiving a percentage of the royalties from sales.
To sell an idea, first protect it with a patent and/or registered design, then invest in professional product design and development to show genuine commitment. From there, approach companies with presentation material (and a prototype if needed) to pitch a licensing agreement, a contract where a manufacturer produces and distributes your product in exchange for […]