Most of the larger manufacturers will require you to sign their submission documents before they will look at your information. These documents are designed to protect the manufacturer against an individual’s claiming that the company took his idea. The submission documents usually state that by signing them you are aware that they may have already seen, been working on or previously rejected the same or a similar idea. If you want to move forward with them you must sign these forms.
Submission forms that you send to manufacturers can also be considered part of your “paper trail” of proof that you disclosed your invention to them should you ever need it. Be sure to keep copies of everything in your files.
If the company is not ethical and you show your unprotected invention or idea to them, they can simply take it. Therefore, the thing to remember is to make sure that you have carefully followed your early protective procedures before approaching anyone regarding licensing. They protect themselves and you should do likewise.
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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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If you plan to be your own manufacturer and deal with retail buyers, learn the language of retailing and be prepared to talk about such things as “planograms,” “sku numbers, “ and “upc codes” in order to understand and be understood. Other things to consider if your goal is to be the manufacturer of your product:
A. Will you maintain manufacturing facilities and hire the work done or import your product.
B. Will you hire a sales force, place the product with a product representative and/or a distributor, or be your own salesperson.
C. Will you handle the day-to-day requirements of running the business.
There are both advantages and disadvantages to building a business around your invention. You are the only one who is in a good position to decide whether that is the correct choice for you. It will depend in large part on your current financial situation, your age, your state of health, and how you want to spend your time. If you have the financial ability, the expertise and you are up for the challenge, maybe this is the route for you. If being in control of your product is important to you, then this may be the right option for you. You can certainly exercise total control over your product when you are the manufacturer.
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