Have you ever considered seeking a license deal for your product? You may be an inventor that just isn’t interested in running a business. Or you may want to partner with someone with deeper pockets that can grow your business more quickly than you can on your own.
If you are considering a license deal, there are three effective ways to court a potential licensee that have all proven to be successful for our clients. You can get a license deal with just a prototype (or even a simple design), product in hand with no sales or by doing a mini launch. Which path is right for you?
The further along your project is the better the deal you can negotiate with a potential licensee. Some of the best deals can pay inventors 5% of gross sales. Many pay $500,000 or more as a royalty advance, and most good deals will come with a guaranteed minimum annual royalty, often $250,000 or more. The best way to score a deal with terms like these is to be in-market with your product. If you can afford to launch a small TV test and prove the product in market, then license deals are easy to achieve and you’ll maximize your payout.
However, not everyone has the ability to do a $50,000 national TV test market (plus the cost of inventory). There are two other ways to get a license deal at a much lower out-of-pocket cost. If you are able to manufacture a few samples of your product, these physical samples go a long way in selling licensees. When they can touch and feel your product, they get emotionally attached and may pursue the product despite the lack of “proof of concept.”
If you aren’t able to manufacture even a limited inventory run, it is possible to negotiate a license deal based on a single prototype or even a drawing of your product (no napkin drawings please!...be as professional as you can within your budget).
In both cases where you aren’t yet in market, licensees still prefer to have some sort of proof of concept. This can come in the form of a web test where a sales website is built and traffic is sent to the site to measure conversion (credit cards are not charged if you don’t have inventory to fulfill orders). Alternatively, an online market test survey can be done to survey a large audience and ask specific questions about the product. We have had better success going the survey route because it’s not just a simple “yes/no” response, unlike a sales website where they either purchase or they don’t. When a survey is done correctly, there are several data points that can prove the likelihood of your product being successful when launched on TV.
When performing market research for the purpose of convincing an investor or licensee to fund your product launch, it’s crucial to use a third-party market research firm. Doing your own market research is a red flag to potential suitors because they know you have a personal incentive to make the results look good. At Harvest Growth, we have performed several hundred market tests, and we would be happy to review your product to see if a survey would be appropriate for you as a step towards getting a license deal.
If you are considering a license deal for your product and would like some advice, please contact our office at (720) 207-9493 or email@example.com.
To your success!
CEO, Harvest Growth