Someone asked me the other day, “Steve, I have a great idea but I’m not sure if I should go forward with it. What should I do?” And the first thing I asked in return was, “Have you looked at the numbers?” It is difficult to determine the level of effort and investment you should put forth into an idea without knowing how much of a return it could earn you. I love all ideas. But some are better than others, and some are going to make a lot more money than others. And some may not be profitable at all. So there are important questions to consider before you make a decision. You should already have an idea, even if its just a simple estimate, before moving forward with a new idea.
First, how many stores in the United States could feasibly carry your idea? Would it be sold in Target or WalMart or Walgreens? Or is it a specialty product? Assume that each store will sell one of your products every week, to be safe. If your product isn’t being sold at least that much, it’ll probably be dropped. What will the wholesale price of your product be? Gather all of the relevant information you can and take a guess. You can play around with all of these figures to account for high and low estimates. And finally, expect that your royalty rate (which is taken off the wholesale price of your product) will be between three and seven percent. What’s your potential income? Move all of these figures around to get an idea of best and worse case scenarios. How much money will you make?
Before I commit to a new project, I do the math and run the figures. Is it worth my time? If I’m going to have to spend 20% of my time each week on the project, but it’s going to make me less than 20% of what I’m earning right now, then maybe it’s not worth it. Maybe it is. But you should never plunge into a situation blind. Too often, inventors underestimate the costs of bringing their products to market and overestimate their royalties. Be realistic.
—————————-
Stephen Key is a successful award-winning inventor who has licensed over 20 products in the past 30 years. He is a board member of Accudial Pharmaceuticals, Inc. and has a new book “One Simple Idea: Turn your dreams into a licensing goldmine while letting others do the work,” from McGraw-Hill. Along with business partner Andrew Krauss, Stephen runs inventRight, a company dedicated to education. Teaching inventors and entrepreneurs the skills needed to successfully license their ideas.
One Simple Idea is available in book stores and online book retailers nationwide. Visit www.inventright.com to learn more.
Article source: http://inventornotes.com/2012/01/13/doing-the-numbers/
Click here to listen to Stephen's interview on the Biz Ninja Radio show.