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Explained: 3 Solid Ways To Make Money From An Invention Idea

4/2/2016

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explaining how to sell invention idea, manufacture, license
For the most part, inventors are hobbyists, enthusiasts, creatives and ideators. Beyond that, going a couple steps further, we are patient, entrepreneurial, and not afraid to take risks. The first set of verbs here, however, explains the majority of folks with great ideas who never follow through and turn an idea into an invention. The second set of verbs describes the few and the proud - inventors who are willing to put in the time and show some grit to bring an idea to fruition.

How does one go from a simple hobbyist to an inventor?

Eyes on the prize: Financial gains. The realization that you actually have a good idea for something the world could use, and there is a commercial and financial upside involved; that is what turns the everyday ideator to a successful inventor.

Most people who follow through with invention ideas are fueled by the money and the prospect of ultimately selling their idea. This isn't everyone - some are purely passionate...but let's be honest, who in today's world has time to donate to something that has no fiscal meaning?

Making Money From Invention Ideas

If you're ready to start turning some of your ideas into cash flow rather than letting them fizzle out (and depriving the world from something they might have!), then there are basically three ways you should learn to make money from your idea:​
  • Sell the invention
  • License / licensing deals
  • Manufacture the invention / manufacturing
​In this article we’ll look at how you can use these avenues for profit. Some elements are common no matter which choice you make on how to monetize your idea. For instance, the first thing you should concern yourself with after developing your idea is patenting it; you want to make sure you are protected. If you haven't applied for a patent yet, go here; if you aren't sure whether or not you're ready for a patent, go here.

Selling your idea

Selling your idea could be the best option if you don’t have the time or entrepreneurial disposition to run a business. Selling allows you to get paid quicker. Selling is also a great option if your idea is trendy and you expect it be outdated at some point in the near future (which, in turn, shows that you've done really comprehensive market research and a commercial value assessment - pat yourself on the back!).

f you’re already working a full time job, selling your idea could be a means to generating a little extra cash. A word of caution if you’re working full time - make sure you don’t work on your idea while you’re physically at work, and don’t use any work resources. This is a future-state idea; you want what you’re ultimately selling to be free and clear of any claims being laid to it by your employer (everyone has a greedy side).

Pump up the value of your idea any valid way you can. Just writing it down and pitching it to a buyer allows the buyer to dictate the value. If you had market surveys, a working prototype, or best of all, committed customers, it would help you control the range of your valuation. While it’s possible to sell an idea that isn’t patented,having a patent will improve the value. The more work you do in taking it from being an abstract idea to making it real, the greater you'll see an increase in the monetary value of your invention.

Don’t pitch the idea to a dozen companies at the same time. If a potential buyer knows that their competition has seen the same idea, they may decide it’s not worth getting into a bidding war over it. If the competition knows about this idea, they can do R&D to come up with a competing product/service, which shortens the time your buyer will have to exclusively market it, which lowers its value.

When you sell, you’re also giving up all rights to your invention idea. Be careful that it’s not the kind of idea that you will want to continually modify and improve. You’ll have great ideas that you can’t use if they’re too similar to what you sold. Licensing would be better if you intend to keep working on your idea.

Licensing your idea

When you license your idea, you retain ownership of it. The majority of the risk is on the licensee. If the idea goes over well you can make more money than you would by selling all rights to the idea. Licensing is good if your idea is for something that people will always need and you can look forward to years of sales. Licensing allows you to continue to work on improving your invention since you still own it. You have a lot of flexibility in how you license. You can license to multiple companies, by geographic area, or by time limits. As you develop variations on your product/service you can charge different licensing rates for each item. You have flexibility in how you get paid as well. You can get a royalty, a percentage of sales, a flat fee, or any combination of these.

As with selling your idea, you increase the value of the license the further along you develop your idea. If it’s a good enough idea, protected by patents and trademarks, you might be lucky enough to start a bidding war for exclusive rights. This is different from selling; the licensee will pay to license it exclusively for a short time, during which they will profit until their competitors roll out something similar. They can then let the license expire if it’s no longer profitable. If you can periodically enhance the product/service enough to make it qualitatively better, that improves its licensing value.

A potential risk in licensing your idea

​Beware that a company may just license your idea to keep it away from their competitor. You won’t make much money on that kind of deal. Specify minimum quantities that they’ll produce and have them give you regular sales reports so you can check that your royalties are correct.

Manufacturing your invention

​The opportunity for profit is the greatest if you manufacture your idea yourself. The risk and the level of work involved is also the greatest. Make sure you have that entrepreneurial spark before you decide to make it yourself. You’re going to have to write your business plan, raise capital, get manufacturing facilities, oversee marketing, and all the logistics necessary to get everything where it needs to be. This requires your full time attention, so you won’t be able to work 40 hours a week for someone else. There will be lots of stress but hopefully, lots of fun as well.

There are opportunities if you decide to manufacture yourself. You have total control. You can start small and gradually expand. You have control over the scale. Generally, the larger the scale the lower the manufacturing costs, but if you’re making a small quantity you can give your product a “boutique” flavor. You may be able to reduce marketing expense by selling on the internet rather than paying stores for shelf space. You can follow an “Avon” or “Amway” model and have local entrepreneurs distribute your item from their homes.
​
You can do a joint venture or partnership, which would allow you to leverage your idea with others’ expertise or capital, and spread the risk and work. As a manufacturer, you could also sell your product under someone else’s brand. They would handle all the distribution and sales and you could just focus on the manufacturing. The downside is that you would have a few big customers and would feel a pretty hefty hit should any walk away.
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