Solve-It! Marketing Co. - Inventor Newsletter

The decision of whether to manufacture an item yourself or sell or license the idea (patent) to others, is usually far simpler to make than you may think. The main advantages of manufacturing a product yourself are control (quality, pricing, packaging, distribution, etc.) and a bigger piece of the pie if the item succeeds. However, if you decide to go that route, you will need enough money to see the project through all of its phases and must be prepared to provide the talent or hire the experts to accomplish your objectives.

In the manufacturing area you may need to deal with engineering, tooling, sourcing, prototyping, quality control, inventory control, labor, administrative infrastructure, warehousing, etc. Equally important is the marketing function (research, pricing, packaging, promoting, distributing, etc.) which should begin early on when developing, prototyping and testing your ideas. Product development shouldn't occur in a vacuum. It should incorporate the feedback from consumer research, focus groups and the like. The message here is that product development and marketing go hand in hand and the manufacturer is financially responsible for making both happen.

1)		Product development.
2)		Packaging, including UPC code.
3)		Creating pricing strategy and price lists.
4)		Manufacturing and shipment of the product.
5)		Sufficient inventory (raw components and finished product) to meet delivery schedules.
6)		Manufacturing quality assurance program.
7)		Creating technical support material and instruction booklets.
8)		Warranty returns and out of warranty repair services.
9)		Providing samples.
10)		The extension of trade credit and uncollectible accounts.
11)		Discounts and allowances (payment discounts, rebates, co-op advertising, special offers, etc.)
12)		Promotions and promotional materials.
13)		Creating, duplicating and providing quality product literature, displays, videos, sales support materials and services including customer service.
14)		Participating in Trade Shows, Exhibits, promotional tours and appearances, in-store demonstrations and customer sales support activities.
15)		Advertising, copy writing, media selection.
16)		Consumer and Retailer/Dealer Surveys.
17)		Product Liability Insurance.

Obviously, there are many aspects to consider when deciding whether or not to manufacture. Especially monetarily, where the financial risk of an unsuccessful product is squarely on you (and/or your investors' shoulders). Can you afford the loss of time and money if it doesn't work? On the other hand, if the product is marketed successfully, the profit margin you could earn if you have done your job well, would far exceed the royalty you would earn from licensing your invention.

When you license your invention (patent), typically you give up control of the item (its look, features, color, quality, function, etc.) and turn all decisions over to the licensee. But you also are not financially responsible for the project. Someone else puts up the money to make this happen and if they succeed, you share in that success to the extent of your royalty interest. Although a royalty (typically in the 3 - 8% range) would not be as profitable to you as the profit margin the manufacturer may earn, you will receive this "mailbox money" without having to be involved with the daily challenges and the financial responsibility of making the product successful.

We are often asked by inventors how much capital it would take to manufacture and launch a new product. The answer depends on the nature of the product and the method of marketing. Some products are simple to manufacture and can be "bootstrapped" for relatively little money, depending primarily on word of mouth advertising. Some products are very complex and/or require repetitive television advertising to get consumer attention and educate them. Estimates of these expenses will be an essential part of the marketing plan. We can say with a reasonable degree of certainty that the expense of manufacturing and marketing any new item will almost always be more than was estimated and first year's sales will be less than projected!

So unless you have access to a considerable amount of capital, have a solid, well thought out marketing plan supported by good research and are able to devote the time and energy to see the project through, the decision is easy; sell or license your idea and let others slay the dragons.

If there are questions you would like to have answered in future newsletters, please submit them to harold@solve-itmarketing.com and we will do our best to include them.