How To Decide Between Manufacturing vs. Licensing Your Invention

Written By Steps To Faculty Published October 14th, 2010

The decision between licensing your invention and manufacturing your product by starting your own business is one that plays a huge part in how much money you will make and the financing required. The six ways to determine manufacturing vs. licensing your invention deal with comparing the pros and cons of both options.

Step 1. Advantages of licensing

By making money from the royalties of someone else selling your product, they assume all business risk. All you have to do is sit back and wait for the checks in the mail.

Step 2. Disadvantages of licensing

The chances of finding licensing success are quite low. An analysis conducted by Ed Zimmer and Ron Westrum uncovered that only 13% of inventors who seek licensing actually find it. Plus, the royalties tend to only run at about 2% to 10% of the total revenue made on your product.

Step 3. How your invention becomes licensed

A few steps are required, including finding the best people to review your product, securing the money to develop and protect the rights of your invention, and presenting it in a marketable way to a licensee. Less financing is required than if your manufactured your own product.

Step 4. Advantages of manufacturing

The potential for financial gain from starting your own business is much greater than with licensing. This is why many entrepreneurial inventors are intrigued by this option. There is a higher success rate as well. About 50% of inventors who take control of their own product succeed in marketing it and making a true profit.

Step 5. Disadvantages of manufacturing

While the success rate is higher when starting your own business, the capital you risk is far greater. The risk never dies completely, even as you begin making sales and earning a profit. This can result in feelings of anxiety that can overwhelm every aspect of your life.

You will produce a prototype, create tools or molds for mass producing it, find a distributor, and enforce patent rights. Not only do you need more financing to succeed in manufacturing your invention on your own, it is also more complex. For example, you may need to form a corporation so you can sell stocks. Overall, your personality will determine which option you take. To succeed at manufacturing your product by starting your own business, you need to be a gifted salesperson, a talented manager, an innovator in business, and a risk-taker. If these do not describe you, you are better off taking the smaller sums of royalties from others selling your invention. Please visit stepsto.com for more great business advice.


Roger Due

Investing in Your Destiny® & Coaching Program - Wealth Building Summit Dallas, Texas

My name is Roger Due and I am from Albuquerque, New Mexico and I am the owner of the Monsano software company. This has been an absolutely fantastic conference. This is the best I have ever been to.