Now that the project partnering agreement was signed, John and Peter decided they wanted to monitor it to ensure compliance. In the agreement they had established a prejob conference. They invited all the subcontractors to this meeting and explained how they would measure the success of the agreement. They were interested in knowing if there were any violations of the terms. They were also interested in knowing if there were any subcontractors who consistently violated their agreements. So they created the chart shown below.
John and Peter agreed to review the chart with all the subcontractors twice a year during the course of the three-year project. The first piece of work completed was the demolition and removal of an old abandoned structure. They met after that segment of the project was completed to see how well the subcontractors involved were complying with the agreement.
As the chart shows, the demolition and removal segment was not without violation, but the one minor infraction appeared to be due to an oversight rather than intentional. Both Peter and John felt the matter was handled appropriately and decided this was not a violation of their trust. Both thought the project partnering agreement was working well and agreed to continue to monitor the results. John made a comment that seemed to sum up their success so far: “Although we’ve just started the project, we’re already a week ahead of schedule because the demolition
and site cleanup went so smoothly.”
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Another option that many independent inventors are choosing nowadays is to license their inventions for royalties. This is a method of choice for many inventors for lots of compelling reasons. Once a product is licensed to a manufacturer, that product will automatically have a place on the planogram of the retail stores where the manufacturer places goods. The manufacturers handle all of the responsibility for producing the product, selling it to retailers, bookkeeping, etc. The licensor (the inventor) goes to his mailbox and collects his royalty checks at regular intervals, usually quarterly. The inventor’s time is entirely his own to spend creating other moneymaking new products or in whatever way he chooses.
While receiving a royalty amount of 3-5 percent of net sales on your product may seem like settling for a very small amount, consider this: the manufacturer is taking all of the financial risk in getting the product on the market. He is spending the money to make the product, warehouse it, insure it, sell it, ship it and handle the bookkeeping. His profit margin on the product may not be as great as you imagine. In addition, if you have a guaranteed annual amount of royalty (and you should!) you will receive at least that amount whether your licensee sells that much of your product or not. Lest you jump to the conclusion that 3-5 percent of the wholesale price does not amount to much, do the math. A product that retails $8-$10 million annually returns between $120,000 and $250,000 in royalty, depending on the percentage. This is money that you didn’t lift a finger to earn once it was licensed. If you are still thinking 3-5 percent is a paltry amount of royalty, consider this; if you are unable to get the product marketed on your own, 3-5 percent of something is much to be preferred over 100 percent of nothing!
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One option to get around this problem, if you plan to manufacture and distribute your own product, is to place your product with an independent product representative. This is a person who represents a number of products from various manufacturers to the retailers. Be aware, if you do this, that you will have to pay the product representative a percentage of the sales for this representation. This can make a significant difference in your profit bottom line, but it may be the only way that you can get your product into the large retail chains.
You can find product representatives by contacting administrative offices of the retail stores and asking them for the names of the reps for your category of products. Product representatives usually cover a specific geographic region. For example, there may be a product representative who covers Texas, Oklahoma and Louisiana. The entire country is divided into exclusive regions for the individuals representing specific lines of products. This approach may require you to contact product representatives all over the country in order to get maximum market coverage for your product, but it can work.
In addition to individual product representatives, for many categories of products there are distributors. These are companies that handle the distribution of an entire category of products to select retailers. When we were marketing Ghostline® on our own, before licensing the product, we sold some product to a distributor who got Ghostline® into stores in a seven-state area. This involved another layer of wholesaling (from us to the distributor and from the distributor to the retailer), but if your profit margin is great enough, you can get greater distribution this way.
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