Selling an Invention on Commission

Part 1

{Don Debelak’s new book, Turning Your Invention into Cash is now available on Amazon for $3.49. Go to Amazon.com and enter inventions Don Debelak to purchase. From the author of Entrepreneur Magazine’s Bringing Your Product to Market.}

Overview

Inventors often have great ideas – but often they don’t have the money to introduce their idea effectively. The traditional way of addressing this problem is to try and find a company to license the idea. Licensing has its own set of problems, the primary one being that most companies are very reluctant to license an idea.  One way around this problem is to sell your invention on commission.

This tactic requires inventors to change their strategy from having a new product to one of having a new business opportunity. You are offering a company a chance to work with the person who knows the product best and who is willing to sell the product on commission versus a salary.  Companies will be interested if the product fits into their manufacturing capabilities and if they feel the inventor is well connected to the target market and will be able to generate sales.

This approach can work with companies that are manufacturers or distributors.  The benefits to the inventor are that one he or she is selling the product with the benefit of the backing of an established company. Two a 5 to 10% commission is better than a 3 to 5% royalty, and three the inventor is still involved with the product and has input into virtually all the decisions made for the product.

Perfect Products

This tactic works best when a manufacturer only has to make minimal changes to its manufacturing process to produce the product.  To arrange a selling-on-commission deal, the product itself, its benefits and how significant those benefits are to consumers aren’t nearly as significant as the manufacturing costs in making it. In addition it helps if the target market has a small distribution network. The manufacturer will be more likely to believe you can achieve sales success if only a few companies control product distribution and you have established a relationship with those companies.

Your Goals

1. Quick market entry. Underfinanced inventors can struggle two or three years to get their product on the market.  Having the product financed by an established company gets the product out quickly.
2. Get established in the market. You want to develop market connections if you plan on introducing a series of products.
3. Faster income. You start collecting commissions as soon as you sell products and the customer pays. On your own you’d have to pay back start-up and cash flow loans before you start collecting income.
4. Introduce a product with limited patent protection. Many product ideas can’t get significant patent protection due to prior art. This is a big drawback for licensing. But it doesn’t hinder you if you are selling on commission. Start with a low cost provisional patent even if a patent search details significant prior art. It helps prevent the manufacturer or distributor from stealing your idea.  See patentsbydondebelak.com for a low cost provisional patent.

Prototypes

The key to lining up a selling-on-commission agreement is to know who the key players in the market are and, preferably to have their support for your product idea before you approach a manufacturer. That’s the best way to show your product might sell. But manufactures will often want those contacts to approve a prototype before investing in tooling.  Sometimes the manufacturer will make the prototype especially if the costs are low.  Otherwise you need to make at a model for market research, though a “looks like acts like” prototype is best.  See http://onestopinventionshop.net/services/product-design-and-prototyping/

Pros and Cons

Pros

1. Requires very little investment by the inventor
2. Can be the quickest route to full market penetration
3. Provides instant credibility to customers
4. Produces reasonably quick income
5. Stablishes the inventor in the marketplace with key buyers
6. The inventor continues to have input into his or her product’s success

Cons

1. Inventors don’t always have control of their product
2. The tactic doesn’t establish the inventor’s company or brand
3. Requires sales and marketing enthusiasm and expertise
4. Works best with products with large customers or a narrow distribution channel

What to Expect

1. The manufacturer will expect quick results from you. Be sure to line up customers first before approaching the manufacturer to sell on commission
2. The manufacturer won’t automatically print brochures, attend trade shows or pay for a marketing program. Be sure to propose a marketing program and get the manufactures approval before agreeing to sell on commission.
3. You will only get paid commission after customer’s pay for the products they buy.
4. The manufacturer might offer you a standard sales representative agreement, which pays commission only on products you sell.  Insist on a commission on all the sales of your product, including an override (or commission payment) of several percent on any of your products sold by other company salespeople or independent sales representatives.
5. The manufacturer will want to produce the product as cheaply as possible.  Make sure the manufacturer doesn’t compromise the product’s features.
6. The manufacturer will not want to make immediate changes in the product after it starts production. Be sure to show a model or prototype to potential customers and get their approval before the manufacturer finalizes tooling and the manufacturing process.

Coming next, Selling an Invention on Commission Part 2.  Covers how to implement the selling-on-commission process.

Looking for Sales Reps?  Check out http://onestopinventionshop.net/books/sales-reps/

Do you need web content?  Don Debelak, who has written 15 books published by major publishers such as McGraw Hill and Entrepreneur Press is currently writing web content.  Check out more information at:

http://onestopinventionshop.net/web-content-writing-services

 Don Debelak offers affordable patent work. Check out http://patentsbydondebelak.com/