If a potential licensee is interested in your product idea, they will call back with further questions. It’s that simple. If and when they do, you should know what kind of royalty rate you want to negotiate.
To calculate royalty rate, start by finding out how many stores they have and assume that each of those stores will sell one unit each week.
Now, try to estimate what the wholesale price of your product idea would be. With a rough estimate of what the wholesale price is and how many products are going to be sold, you can estimate how much money is going to be made from your product.
Finally, you can determine how much money you’re going to make at what royalty point. How much will you make at a 12% royalty rate? At a 8% royalty rate? At a 3% royalty rate? The usual negotiations start at 7% which can go down to 5%. The more work you’ve done on a product, the more you should ask for. Once you can agree on these terms, you can move on to the contract.
At New Product Consulting we help facilitate the right agreements to get the most for our product developers. If you or anyone you know needs help with a new invention idea, please contact us at New Product Consulting.