Self-Production vs. Licensing – Basic Information

Mary Couzin

Licensing or Manufacturing your own product is a big decision for many inventors. The choice depends on your product and how much work you are willing to do to produce and market your product. Some products lend themselves to both. You might produce and market your own product in the United States, for example, and license the rights outside the US.

Some inventors start out self-producing and end up licensing. They self-produce and create demand to eventually license at a higher royalty rate to a major manufacturer. Trivial Pursuit, Tribond and Pictionary took this route.

Whether you self-produce or license, make certain you playtest your prototype with people other than your family and friends. This feedback is crucial and you will either have your own money at risk or be wasting a company’s time reviewing your idea and lose your credibility.

If you self-produce, you will be responsible for the design, manufacture, distribution and marketing of your product. And, although risky, the potential rewards can be higher such as: control over your product, more income per item (you keep the difference between wholesale and cost, generally much higher than a royalty) and you can work the nice markets that the bigger companies do not normally work. On the downside, you are risking your own money or your investors and it is a lot of work.

If you license, you will probably need to work with an agent since most companies will not meet with an unknown inventor. Agents are the gatekeepers for the licensing companies and generally charge a fee to review your product, but you don’t have to do the graphics, production, marketing, etc – much easier! An agent will charge in the 40% to 60% range of the royalty you receive, which is generally 5%. It could be higher if you have a proven record of sales. It is difficult to get a company to see your product let alone license your product. They see thousands of concepts a year and it can take over a year. The downside of licensing is that you lose control of your product and you can only hope they do a great job with your product. There are instances, of companies such as Zobmondo Entertainment, that have taken back their product and marketed it more successfully than the licensing company (Hasbro in this case).

There are many success stories (and not-so-success stories) for both self-production and for licensing. You need to decide what level of risk you are comfortable with and whether the attributes of your product affect the decision.

In either case, we wish you great success!