Common Sense Inventing - Educational articles to help Inventors make informed decisions

I have gotten a number of email questions about royalties so I would like to point out a misconception by many Inventors pertaining to how they are calculated. The actual portion of your royalty if you are licensing a product is NOT based on the price of the product in the store. Your royalty is based on the sale price the company manufacturing it sells it to the distributor or stores.

That item you see in the store for $12 might have been sold to the store for $4 or less. Your royalty is based on the $4 NOT the $12. This also plays into the other statement I hear from many Inventors when an Inventor states their idea/product is a million dollar idea.
Let me say up front yes there have been million dollar ideas. But, I want everyone to have realistic expectations of what that takes. Using the $4 sale price above and your royalty is on average between 3% and 5% of that $4. So you can be making 20 cents per item sold on the high side. Using that royalty return think about how many items do you need to sell in order to reach the 1(one) million dollar mark in take home royalties? And don’t forget to add to your calculation as if it is after your taxes are taken out? This will give you your true ending profit. For this example let’s say your tax percentage is typically another 33%.

Another thing to keep in mind about royalties is they generally do not start as soon as you sign the licensing deal. You have the wait time from when they say yes to the licensing deal for it to be manufactured, which can be a year or more. Then they have to get purchase orders, fulfill those orders, get paid and then pay you 30 days after that. Once you get the first royalty check they normally show up every 4 months after that.
That is why I always stress having patience and don’t rush out and buy a new car as soon as you sign a licensing deal.
Based on the example above if you are getting $0.20US royalty per unit it would take 6,650,000 units to return $1,330,000US. One third of which goes for taxes. $1,330,000US – $330,000US = $1,000,000US.

So you can see it is possible to make a million dollars from your idea if the unit volume is high enough. The question you need to ask is your market large enough to meet that demand? Where I see Inventors having unrealistic expectations is in their expectation of their market. For example if your market is 10 million consumers of a particular type item you cannot expect that all 10 million will purchase your product. It will be a percentage of that 10 million. Will it be 1%,10%, 50% or higher?

A problem most Inventors neglect to take into consideration is the fact that if the majority of consumers that have a product similar to yours are not likely to throw out the current working item just to purchase yours. Consider if Bridgestone came out with a new advanced tire that will last longer than your current tires you have had for 6 months. Would you run down to the tire store and get rid of the four tires on your car that still have 50,000 miles left on them? That is what you are expecting consumers to do when you think an entire market will 100% buy your product. What really happens is the consumer will wait until those tires are worn out then when it is time to replace them they will compare yours to their other options and make a decision.

So, when you consider your possible earnings from royalties it is better to wait for the check to be in the bank before you spend it.
Check out my Ebook “Common Sense Inventing” http://www,rogerbrown.net/ebook

I get asked this question quite often “Should Family Members or Business Partners Sign an NDA?” An NDA is best to use no matter who you are discussing your idea/product with. When you say don’t worry about family you can trust them. Consider does your family know as much as you do about how to treat your idea/product and keep it confidential? Do they know about public disclosure and how that can hurt you? Having them sign an NDA pushes the point that you are taking this seriously and they need to respect that and not tell your neighbors about your idea/product unless you agree it is okay to do so.
The same goes for anyone you are in business with and plan on showing them your idea/product. It sets the tone for everyone that you take this seriously and you want to keep it private. I work with a lot of Inventors and can tell you from experience showing your idea/product to family and friends is not a great indication of whether your idea/product is a winner. Most family members will not want to hurt your feelings so you will mostly get positive feedback from them. Which can cause you to spend money needlessly.
You need people that you trust to give you brutally honest opinions of your idea/product. It is not hard to find people that love everything you show them. You want people that give honest opinions and you need to not let those opinions hurt your feelings or take it out on anyone that tells you your idea is not that great.
I have done idea/products reviews for a living for a number of years and the Inventor is quick to want to shoot the messenger instead of taking a hard look at why they got a rejection. I have shown Inventors several products already on the market that are better than the one they are swearing is a million dollar idea and all they can respond with is that doesn’t matter theirs will still be worth millions. You need to make informed decisions based on facts, not what you want to happen.

What do I mean by “Can You Say It Without Saying It?” It’s simple really, but something a number of Inventors struggle with when describing their product/idea. The object is to be able to tell the company Rep you cold call or email about your product with just enough detail to peak their interest without giving away the entire idea/product. I will give you some examples below and if you are interested you can see the Sell Sheet that was sent to the company after they confirmed there was interest in the product here http://rogerbrown.net/inventor-help/ .
The trick is to tell just enough so they can see the value of the product and have a good idea it would fit within their line of products. It also lets you gauge the level of interest and if you feel they are a company you want to deal with.

1. This kitchen utensil allows the user to slice pizza without damaging the pizza pan, serve it as a spatula and comes apart for easy cleaning.

2. This game lets two players play a fast action game of hockey on most tabletops utilizing a boxing action device and a retractable border.

3. This takes the traditional game of Horseshoes and gives it a new twist where the user has to not only ring the opponents’ pole but reach a certain height of the pole to gain extra points.

Now in each example I have told you about the product/idea but did not tell how I achieve it. But based on those statements they can gauge if there is interest to learn more and if it might be a fit for their line if things moved forward.
Think about your product/idea and see if you can describe it without giving away exactly how you would do it.

Here is another example from a device I invented and licensed called the Super Sleever (I know corny name but I did not pick it)
This device eliminates the need for two operators taking 45 minutes to sleeve water hoses, electric cords and breathing air hoses to one operator and less than a minute. This saves millions of dollars a year in manhours and reduced waste.
As you can see that peaked their interest without me giving away how I was going to do this. It ended up saving around 4 million dollars a year in just one facility and was promoted and used throughout 17 other DOE facilities nationwide. You can see the write up here. http://infohouse.p2ric.org/ref/14/13978.htm

It never ceases to amaze me how many Inventors think that just because a company has a set of policies they will change them for the Inventor. Below is an example of what I mean. Without going any deeper into the company you can plainly see that 3M is only looking for PATENTED ideas. They even state they are not looking for patent pending ideas. And below that they state in Bold Print ”

NOTE: YOU WILL NOT RECEIVE A REPLY TO ANY COMMUNICATION YOU SUBMIT CONCERNING EXISTING 3M PRODUCTS”

So, my question is why are Inventors griping about how a company treats them when a company spells out their policy and the Inventor still sends them exactly what they said they don’t want to see? And does this add to the perception by many companies that Inventors as a group are crazy?

http://solutions.3m.com/wps/portal/3M/en_US/Submit…

Submit Your Idea
Welcome to 3M’s website for the submission of new product ideas. We appreciate your interest in and support of the 3M Company.

Patented Ideas for New Products
Each year 3M assesses thousands of ideas, including many that come from people outside of our organization. We are truly appreciative of these submissions, but for legal and practical reasons we can only accept and assess an idea if it is protected by a granted or issued patent and submitted to us using the following process.

• Submit a Patented Product Idea
• Request the Status of a Previously Submitted Patented Idea
• Frequently Asked Questions

New product ideas associated with pending patent applications, provisional patent applications, and/or patent applications that are otherwise in prosecution will not be accepted in this process.

Your Thoughts Regarding Existing 3M Products
3M also welcomes comments or suggestions that you may have for improvements or new uses of existing 3M products. PLEASE NOTE: YOU WILL NOT RECEIVE A REPLY TO ANY COMMUNICATION YOU SUBMIT CONCERNING EXISTING 3M PRODUCTS

• Submit Your Thoughts Regarding an Existing 3M Product

To often I get contacted by Inventors that have paid for a patent search long before they should have spent any money. They either contacted a Patent Lawyer or an Invention Submission company and were told the first thing they need to do is conduct a patent search. Which of course costs a fee.
The correct action should have been for the Inventor to do their research first which only costs them their time. With free access to the patent office website and other search engines such as google.com/patents you can do a lot of your own research for free.

I am amazed at how many Inventors don’t even do a word or image search in Google to see what shows up… again free. Go to any store and look at how many products you see that are not covered by a patent. These will not show up in a patent search and neither will the PPA’s that could already be filed on your same product idea. Look at the amount of posts/ads you see in any Inventor related sites that push spending your money on patents and patent searches. Why? Because they have nothing to lose. They are not going in debt, you are, so it is easy for them to say go for it. Plus, you are making them richer. Not yourself.

You will find out that in a lot of cases the idea you first come up with and the final product may not even be close to each other by the time you get the final version and is not covered by the patent you filed. Keep in mind your patent is only as good as the Claims you are able to get granted. And most companies prefer utility patents over design patents because design patents are easier to go around.

Ask patent lawyers what percentage of patented items actually make it to market? You will find that the success rate is extremely low. The former head of the USPTO had said in one of his presentations that the rate was around 4% that actually made it to store shelves. So that means 96% wasted their money. Granted some people don’t care if their product makes it to market. They just want to be able to say they have a patent. Which is fine. But If you want to see a return on your investment, not just a piece of paper you can hang on the wall, you will want to do your best to research your idea first.

Stop buying into the hype and fear someone will steal your idea if you don’t pay for a patent search and file for protection right away. Do as much of your due diligence up front for free and make informed decisions.