• Bios Clinical Acne System is an acne system that uses topical probiotics to treat adolescent and adult acne.
• Humankind Water gives 100 percent of its net profits to provide clean drinking water for some of the one billion people in this world dying without it.
• Mr. Spritz Mysterious Shirts are entertaining t-shirts containing hidden images that appear when the garment gets wet and disappear when dry.
• Plate Topper transforms dinner plates into airtight food storage containers to save meals, leftovers and snacks. They are dishwasher-safe, microwave-safe and 100 percent BPA-free.
• Sola-Bag Forever Carry Refrigerator is a lunch bag that stays cold forever by generating energy from solar power and indoor lighting.
• Soleeze Spring Loaded Insoles are spring-loaded insoles and shock absorbers that fit into any shoe or boot and last for years.
• SnapIt Eyeglass Repair Kit is an easy way to fix your sunglasses or eyeglasses in 30 seconds.
• SUSIE Magazine is a bimonthly Christian print magazine and online sisterhood for teen girls promoting healthy relationships, good role models and positive self-image.
• Veterans Farm Datil Pepper Salt is a datil-infused kosher salt created at a Veterans Farm, where disabled combat veterans are taught farm skills to help them overcome physical and mental barriers and get jobs.
• We the People Bracelet features silver sterling beads with ingrained detailed descriptions of the Amendments to the Bill of Rights.

List reprinted from the Sacramento Bee, Read more here: http://www.sacbee.com/2012/04/05/4393000/walmart-announces-top-10-finalists.html#storylink=cpy
So what does this tell inventors?  The caveat before starting is that the votes were from consumers, so this doesn’t mean this is what the stores really want to buy. But still there are interesting points for inventors that could impact the products that they want to introduce.

1. Products with a message or products that “do good” for others seem to particularly appeal to voters. Humankind Water, Susie Magazine, Veterans Farm Datil Pepper Salt and We the People Bracelets all fall into this category.
2. Products that attack common problems that people know they have are popular. Acne, storing leftovers (The Plate Topper), a refrigerated bag (Solar-Bag Forever) and the spring load shoes (The Soleeze) all attack problems that many, many people easily recognize, and recognize that the problem to date is unsolved. My experience is that products that attack well recognized problems can be instant winners.
3. The other product, Mr. Spritz Mysterious Shirts, is a mystery to me, but it does show that you can’t always predict what people will like.
4. The last point is that the ideas are all straight forward solutions of problems that many of us face. Every person could make a list of problems in their life that are probably shared by many others. Fix that problem, and look out world. The weedwacker is a great example, the product took off because it was a hassle using those darn clippers. The iPod, the easy way to store and replay music as you walk around is another. Even products like roller blades, which seem to have an easy to understand benefit, required a major marketing campaign outside of states like Minnesota, where the benefit of “ice skating” in the summer was obvious.

Lessons to Keep in Mind

The winning ten give inventors guidance on how to increase your chances of having a winning invention. My own list of the key criteria to a successful invention include as one of its mainstay that a product’s benefits must be obvious, which typically only happens when a product solves a problem people know they have. Read on after the list of the five key criteria for more information on how to create a product where the benefit is obvious.
The five key criteria for success of a product from an individual inventor are:

• The product is easy to distribute;
• The technology is simple;
• The product is perceived to be unique;
• The benefit is obvious;
• The product can be sold at four to five times its manufacturing cost.

The Benefit is Obvious

By obvious I mean people can detect why your idea is better in less than three to five seconds.  If it takes longer than that for people to understand your benefit, you need a marketing campaign that is beyond the means of most inventors.

• Show friends and family brochures of your product and other products and ask them to rank them top to bottom for how likely they are to purchase the product.  Then ask people why they ranked the products high that were their first three choices.  First at least 25% of the people should choose your item as one of their top two choices, then at least 75% of the people should list your unique feature as the reason they chose it.
• Show your sales flier along with two other products that provide a similar benefit (it is OK if it is just a drawing) and ask people what they feel is the major difference between your product and the others. They should be able to answer in five to ten seconds. Then ask why that is important. Again if they take longer than 10 seconds to answer, your product’s benefit may not be obvious enough.

Good News for Inventors

The one aspect of the Wal-Mart top ten that I love is it shows that everyday inventors with products that are not all that technical or expensive can still have a winning product. It also shows that there are still plenty of problems and opportunities still out in the world for inventors to solve.  So good luck and keep pushing till you find the idea that you can turn into a profitable product.

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The question is now how to move from the idea to an invention that will really work.  Thomas Edison’s famous quote is that “genius is 1% inspiration and 99% perspiration” and that principle also applies for inventions. So just how do you go about applying that 99% perspiration?  This article is about phase one of the process, going through the process to determine what is the best first approach to deliver your solution. This phase is really a five step process. 1) understanding all aspects of the problem or opportunity from an end-user point of view; 2) doing a search of available technologies; 3) brainstorming; 4)Choose your best choice; and 5) look for your second best choice.

Building You Knowledge Base

Have you ever noticed that you come up with ideas while you are sleeping, driving or doing something besides than trying to think of ideas.  That is because you have a head full of ideas and sometimes you synthesize them when you least expect to.  The key point here though is that you need your head full of information in order to do this effectively.  So you need to find out as much as you can about your customer and possible solutions if you want to have a real winner pop into your consciousness.

1. Understand All Aspects from an End User Point of View

My first invention related job was with the inventor of the first reclining dental chair. When he came up with the idea, he started by spending whole days in dentist offices watching the dentist work.  He kept asking the dentists, “Why are you doing that?”  Great inventions most often come when people understand all aspects of a situation, including what people do now to solve the problem and how current products work.  Understanding what the most important aspect of the problem lets you focus on a solution that will have a big wow factor

2. Doing a Search on Available Technologies

One of the great services inventor clubs offer is to critique ideas, where inventors share ideas and how they could be done better.  Sometimes clubs will do this even for existing products.  The advantage to doing this is that inventors can get exposure to a wide variety different technology and tactics for solving problems.  You should participate at inventors clubs if there is one in your area.  You can find clubs on the internet at www.inventorsdigest.com/resources/inventor-organizations.
If you don’t have a nearby club that suits your needs, you should go to trade shows where people sell products to companies, retailers and distributors and just investigate how products are made.  When you see something interesting, ask someone in the booth what process they use to make the product. Try to attend all the trade shows that come into your area for a few months so you get fairly familiar with all the types of processes that could be used to make your product.

Creating Your Idea

Your knowledge base is the foundation where great ideas succeed.  But that doesn’t mean the process is logical, or that you should follow a prescribed checklist to create your great idea.  Now it the time you let go and let all the possibilities come out before choosing the idea that you think makes the most sense.   Roger Von Oech, author of the great book A Whack on the Side of the Head  states “nothing is more dangerous than an idea when it is the only one we have.”  One idea leaves you vulnerable to locking onto it and not considering any other, and possibly better, options.

3. Brainstorming

Brainstorming works best with a group of people, some with technical knowledge and some with knowledge of the end use.  They don’t need to know anything about your idea, which for brainstorming is to come up with a better way to do something.  No ideas are bad, and you don’t want the group to choose the idea, you only want a list of 50 different ways that can solve the problem, different approaches.  Let people comment on what they like or don’t like about ideas and have someone keep track of what is being said. Wild and crazy, practical or impractical, possible or impossible, it doesn’t matter. These sessions are just to help you break out of the box of traditional thinking.  Don’t go on without at least 10, preferably more, ways to solve the problem.

4. Choose Your Best Choice

Now is the time to think things over, not quickly, maybe even taking a month to decide what to do.  First write down the ideas that do what the end-user wants, even if you don’t think you can do them.  Write them in sequential order, first being the one the end-user will like best. The product ideas that will make the end user say wow are the best ideas. Second write down the ideas by what will be the easiest ones to manufacturer again listing the easiest one first. Finally write down the ideas by what you think they will cost to make the, the cheapest method being first.  Finally get a list of competitive products in the market and what they cost.  Now just let all this information stay in your head for awhile and you will start to lean towards some combination of ideas that you feel are best.  There really is no best way to do this, and each person may decide on different best choices – which is why inventors that work in groups of two or three often do best – but in the end each person will decide on one best choice, which is your starting point for the invention.

5. Look for Your Second Best Choice

Now this next step – ruling your best choice off the table – which is an idea from von Oech’s book “A Whack on the Side of The Head” may not seem appropriate, I’ve found it is immensely useful. First of all, your first selection is typically the safest most practical solution that is most likely not going to get the high wow factor.  It is the off- beat, chancier product that is more likely to get people’s attention.  So the right answer (isn’t that how you looked at your first choice?) is now off and you need to come up with three other possible solutions, which means you might change your criteria, might dig a little deeper into what the end-user wants or might look at totally different ways to produce the product.  Many times when I have tested my second choices with end-users, they preferred it, it was different, not so practical and showed out of the box thinking.  Looking for a second or third best choice can often leave you to the best choice.

One Last Story

One of my most successful new products was a new dental chair, which took over 50% market share less than 12 months after introduction.  We had the product but it was a little lackluster, so we sent a person to a dental office who had never sold, designed or built a dental chair.  He came back and said when the dental chair back does down, the patient’s head moves backwards and the dentists has to move all the equipment back to where the head is.  His question was “Why don’t you keep the patient’s head in the same vertical plane.”  Well we did that with a feature we called compensating traverse and the product went from being lackluster to a sizzling best seller.  Out of the box thinking worked just fine.

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Observational Research

Observational research consists of just watching end users use the product, noting each step a user takes and then asking why he or she takes every step. This is the type of research that many industry giants such as Proctor and Gamble use regularly. If you observe four or five users in action you will use notice they compensate for different drawbacks to a product, drawback that they might not even realize exists. When I was the marketing manager of a company selling dental chairs, we had an engineer sit in a dental office and observe dentists. We found that dentists had many elderly patients that did not like to lie flat.

Dentists were twisting and turning and struggling to work on these patients. In response to this need, we created a new chair with an articulating headrest that allowed the patient’s back to be at a 45-degree angle while the patient’s head was still parallel to the floor. The articulating headrest feature helped the chair become the number-one-selling chair on the market in just six months.

You should do observational research on your product, to find flaws, or ways it can be improved, as well as on competitive products, so you know their weaknesses. Outlining your observational research is a great way to explain the competitive advantages of your product.

Comparative Research

This process simply asks buyers or end users to evaluate your product against three to seven other products asking them rank them by their likelihood of purchase. It is useful to do comparative research for both direct competitors –products that achieve the same benefit with a similar device, for example comparing five garlic presses – and for indirect competitors, for example products like the garlic twist that mince garlic in a totally different way, but give the same result to the consumer. The ideal set up is have people evaluate all the ideas, #1 for most likely to buy, #5 for least likely to buy and then ask people why they ranked the products as they did. People will prefer a product for a wide variety of reasons, easier to use, easier to clean, one product has a feature they feel is important, or other products have features that annoy the end user. This research gives you information on how to promote your product, which features are important / unimportant, and how important your differential advantages are to the consumer. If possible, I recommend you do this research before you go too far on your product development as you might want to make product changes after the research.

Price Point Research

All too often inventors price their product based on their manufacturing costs, and they end up with a price that is too high. Instead inventors should worry about what price end users will pay, and then target a manufacturing cost that is 25% of the selling price. If you can’t hit those manufacturing costs, you probably shouldn’t introduce the product, or you will need to look for a bigger market where the increased volume will help drive the price down.

Comparative and observational research are primarily done with end users. For price point research, try to include as many industry people as you can: store owners, retail sales people, marketing personnel or sales reps that sell products to the store. If you need help finding sales reps look at this article: http://onestopinventionshop.net/blog/2011/02/setting-up-a-sales-rep-network/

Price point research is done just like comparative research, only you are looking for people to rank products from the most expensive to the cheapest. For the test, try competitive products that range from twice what you think your price should be to half of what you think your price should be. Then have people rank the products with # 1 being the most expensive to # 7 being the least expensive. You want to observe the products ranked just above your product and just below. If the product above yours is $7.00, and the one below is $5.50, then you know your product should be priced at about $6.00 to $7.00.

This price point will be important when negotiating with manufacturers because you can tell them the maximum price you can pay and important when you start to sell the product because you will have facts as ammunition when people try to get you to lower your price.

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Inventors frequently have multiple ideas. The question is which one to pursue. Other inventors feel like they are creative and can solve many problems and wonder which ones to attack. Even in winning categories there are some products that are better than others. Recognizing winning categories and then the wining products in that category will greatly help you succeed. This article will help you recognize which ideas have the best chance of success.

Winning Opportunities

Some of these principles apply across the board, whether you are looking to produce your own product,    license it to a manufacturer, or strike a joint venture deal of some kind.

Across the Board Principles

• A new market is emerging — when the scrapbook industry started, many of the suppliers were inventors and small companies that have since become mainstays of the industry. Another example is that many of the accessories for cell phones were from small companies and inventors were the leaders in creating the pampered pet category.
• A product category is stale — there haven’t been any new products for a time, which results in companies having low margins. A few years ago wall paper had become a stale product, and then a flourish of activity developed with faux painting sponges, speckled paint for entertainment rooms and glazing print applications.

Licensing Opportunities

• Companies responding to competitive moves — companies move as quickly as possible when they are at a competitive disadvantage. Some inventors stay in a an industry, often one where they have worked before, and watch for opportunities created by new product introductions. They simply move to offer a product to companies who at a disadvantage in a product category after a new product introduction by another company.
• Companies with slowing growth rates — a company who has led the market in the past sometimes will run out of ideas and their growth will slow. These companies are very interested in ideas that keep their sales rates increasing.

Winning Products

Once you have an opportunity, you need to create a product with a high wow factor that will accelerate your product into the market. Follow these guidelines and you will have a much better chance for a successful idea.

• Appeals to customers with passion — people with passion know what products are available, spend freely, and will pay a premium for products they want. High income mothers with babies, people with beloved pets, dedicated golfers, and gourmet cooks are all examples of people with passion.
• Clearly understood benefits — products were people immediately grasp the concept have a strong chance for success. A cell phone that also does email is an easy to understand concept. A smart meter in your home to control energy is an easy to understand benefit, but how to install and control the usage is confusing and the smart energy meters is a concept that has been slow to catch on.
• Meets a total solution — customers prefer buying one product that takes care of their entire need. The concept of a total solution applies to new products as services. This is the core concept behind a catering business, but also the concept behind products like the iPad, the new generation of cell phones and the Swifter, the all in one cleaning product.
• Helps customers meet their goals — customers buy products for their own reasons, not your reasons, so always look for ideas that help people meet their preferred goals. Weedwackers were a big improvement over grass clippers, and the products are now owned by most homeowners. Granite counter tops help customers meet their goal of having a high end home look, even for modestly priced homes.

Are Successful Inventors Lucky?

Inventors who have yet to have success sometimes feel that winning inventors have had good timing or that they have been lucky to be in the right place at the right time. Truly, some do have luck. But inventors can greatly increase their chances of being the lucky ones by simply watching for winning opportunities and then create products that meet the criteria for success. Some inventors just fall into the right product, but you can succeed by planning and watching and creating ideas where the timing and features are right.

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Part 1:

Part 2:

Part 3:

Part 4:

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Aug 23, 2010 – Santa Monica, CA – T2 Design Corporation (http://www.t2design.com), featured on a Freemantle TV series, has designed and prototyped dozens of new inventions for their clients and several of these products are now being introduced on television.

“Inventors and entrepreneurs find TV to be a powerful tool in making the public aware of their new and innovative products,” says T2 Design President Paul Berman.  T2 Design recently licensed a barbecue tool with Chuck Khubani’s company Ontel, a leader in the direct Response and retail business.  Ontel is a pioneer in the “As Seen On TV” industry and some of their current products include the “Iron Gym,” “Swivel Sweeper G2″ and the hugely successful “Dryer Balls.” Ontel sells their products, from housewares to hardware, on television, retail and at http://www.ontelproducts.com.

Lit Mitt

Another T2 Design client appeared with their invention on Discovery Channel’s popular TV series, “Pitchmen,” starring Anthony Sullivan and featuring the Young Billy Mays.   Inventor Linda Sue Miller launched her product, the Lit Mitt, the grill mitt and oven mitt with lights on the premiere episode of “Pitchmen” season two.  The Lit Mitt is a barbecue and kitchen accessory with 3 powerful LED lights that allow you to see what is cooking on the grill or in the oven.  The Lit Mitt is a flashlight at your fingertips.  The Lit Mitt comes in two sizes; grill mitt with lights and oven mitt with lights.  It is available for order in black, red and red with Christmas Print trim at http://www.litmitt.com.

A success on QVC and selling out their product every time it appears, are T2 Design clients, Marc Newberger and Jeffrey Simon.  Marc and Jeff’s “Drop Stop” is a car accessory that stops cell phones, jewelry, keys and pens from dropping into the gap between the car seat and the console.  It also helps reduce driver distraction by keeping one’s eyes on the road.  The Drop Stop is available for order at http://www.buydropstop.com.   Inventors Marc and Jeffrey both believe that the key to success is to follow your dreams.

“No matter what anyone says about it, if you believe in it and put your passion and heart into it, no one can stop you and you will make it happen, however it plays out,” said Jeffrey Simon.  Marc Newburger adds, “We discovered Paul Berman of T2 Design while watching the ABC’s hit TV show, ‘American Inventor’.  He had several designs that made the top 10 and seemed like a pleasure to work with.  He was.  He really gets excited about a project and makes the whole experience a fun, collaborative process.  His pricing was more than fair and he helped get our little invention ready for the marketplace.  I highly recommend taking a meeting with Mr. Berman – you won’t be sorry.”

T2 Design has been designing and prototyping inventions for over twenty years and works with inventors from idea, to design and prototyping to manufacturing.  ”Consultations are done over the phone or in person,” said President Paul Berman. “Inventors find us from all over the world at http://www.t2design.com.”

T2 Design was featured on ABC’s hit show American Inventor. Services include product design, prototype construction, patent search, engineering for production, and manufacturing sourcing and liaison. T2 Design is rated “A” by the Better Business Bureau.

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Let’s look at an example of how this works.

Inventor Story: Bud Fraze

Bud Fraze was an aerospace engineer who designed action toys on the side. When a mother of a year-and-a-half old blind child found out he designed toys, she wouldn’t leave him alone. She was unhappy with current blind balls that would bounce and roll away. She said her son needed a ball that wouldn’t roll away, was easy to grab and wouldn’t hurt anyone. The mother kept on calling him until he finally decided to make the ball.

Combining some things he knew about weather balloons and sailing, Fraze created the Rib-It Ball, a soft, lightweight ball that makes noise so children can find it and with ribs that make it easy to grab, but that keep it from rolling very far. He set up production with a Chinese manufacturer and got the first shipment, which to his amazement sold out in just a few days.

Soon Fraze was getting orders from therapists working not only with the blind, but also with cerebral palsy, plus he got an order for $40,000 worth of balls from a catalog of special products for the blind.

His next big break was getting a call from the Helen Keller Center for the Blind. They loved the ball, but they said it needed different coloring. Many children are visually impaired, but can still make out highly contrasting colors, so he started making balls with red, white and black contrasting designs.

Since then, special-needs teachers and therapists have been suggesting ideas to him, some of which he designed and refined. These ideas became a growing line of special needs toys carried by PlayAbility Toys, the company Fraze founded.

Teachers are ecstatic about Fraze’s toys and that finally someone is listening to them and creating the toys they need. But it is Fraze who feels like he is really getting the help. He is using their years of experience and research to create great products that really sell. All of these teachers and parents were a great untapped resource of ideas and Fraze is developing these ideas into products and building a successful business out of it. Everyone is happy with this great win-win situation.

How to Tap into Your Customers’ Knowledge

There are lots of ways to get connected with your customers. The internet has made it extremely easy to connect with different interest groups either on websites, forums or social media sites. Also trade shows or conferences can be invaluable for connecting with customers and other industry experts. But not all markets have groups of customers are willing to go out of their way to help you. Of course you can organize focus groups in any market, but only in certain markets you will get the kind of expert help that Fraze got.

The markets that will help you the most are markets with few products, meaning they are generally overlooked, but with lots of expertise. For instance, Fraze’s market had some products, but people were unhappy with them and always looking and hoping for something better. Also those people had lots of experience and much research has been done in their field. So Fraze’s customers could tell him exactly what they needed and he used his engineering background to make it for them. Of course, you don’t need an engineering background to serve markets like these. You can learn what your market wants and hire someone to design the product for you or try to do it yourself.

These overlooked markets are everywhere. They are generally pretty small and so for big corporations it often doesn’t make sense to enter these markets. But if you set up a smaller operation, like Fraze did, these markets can be very profitable.

Once you have found your market, start talking to people in that market about the problems they have or what is wrong with the products currently sold. If you tell them you are looking to develop a product for their market, they will probably tell you what you’d like to know. Then use their input to start developing the product.

Once you have a prototype, show it to them and ask for more input. The more input you get the better. You don’t need to follow all their advice, but listen and see what you do to meet their needs.

The great thing about getting input from people in the market is that when you develop the product according to their specifications, they are ready-to-go customers. For instance, when the Helen Keller Center told Fraze to make balls with contrasting colors, he did. Then we he let them know the balls were ready, how could they not buy?

Once you develop one good product for that market, keep on talking to people in the market. Use their expertise and listen to their problems and you may be able to develop one product after another, creating a great business. It may even go beyond just creating a great business. In Fraze’s case, he is genuinely helping children with vision impairment. In situations like this, everybody wins.

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Many inventors have a hard time pricing their product.  Why is this?  It is because pricing your product is a very difficult task—one that takes weighing multiple factors.  The two main aspects you need to weigh are cost and market factors.  We will deal with pricing in a three part series, with the first part dealing with market pricing, the second part dealing with cost pricing and then the third part dealing with how to balance the two.

So now you know what the market determines for your price and you know what your costs tell you about how much you need to charge to make a profit — now what?  Well, this will be easy if your market price is higher than your cost price, because then you can just go with your market price and you should make plenty of money.  This is because the market can bear a price higher than you need to make a profit.

The trouble comes when your market price is lower than your cost price.  This means the market can only bear a price that ensures you won’t make a profit.  Does this mean that your product can’t succeed?  No, because you can always change your product.

Your market price will be lower than your cost price when customers don’t value your product enough for what it costs to make.  So you have two options, make your product have more value for little extra cost, or have your product keep value with less cost.

For both options, you will need to go back to your focus groups.  If your product wasn’t ranked as the top value, what was lacking that was present in other products?  Can you add similar features for low cost?  Often, adding an abstract appeal is the best way to add value with little extra cost.  Can you make your product look fancier or more in-style?  If so, that adds value.  Another good way of adding value with little extra cost is to provide a more complete solution.  If your product needs to be used in conjunction with another product, can you combine the two products to create a high value?

Also look at what product features are not important to customers.  If you have a feature that customers aren’t interested in, eliminate it, that will save you money in manufacturing, hopefully bringing your market and cost prices in line.  Also, to lower your costs, you can look at sourcing your manufacturing overseas.  You will want to still have a way of monitoring quality, but this can be a good option for lowering prices.  Before you resort to that, you should find an engineer with experience in manufacturing to look at how you make your product.  He or she might be able to suggest some new methods or materials for manufacturing that could dramatically lower your costs.

Another option is changing distribution.  If you switch to a distribution system with fewer steps in between you and your end users, you may be able to make the market demands and cost demands line up.

One hidden cost in distribution is packaging.  For instance, if you sell to retail stores, you will need high quality, professionally designed packaging.  This is a big expense, but one that the distribution channel requires.  But if you sell through catalogs, or directly to customers either through the internet or direct marketing, you will only need a package that can get the product safely to the customer.  This can be a huge savings.

If you end up making changes to your product, either by adding value or cutting costs, go back to your focus group and see how they rate your product.  You will want the rating to stay the same if you cut costs and you will want the value to go up if you tried to add value. Hopefully your value added will be a bigger proportion than your costs to add that value, but if not you will need to employ some other tactics mentioned in this article to bring your market price and cost price in line.

Getting your product priced right is a big concern, because like I mentioned in Part 1, having the wrong price can have disastrous effects.  Usually this happens when someone prices their product too low.  This can only lead to bankruptcy.  I think the problems many airlines are going through reflect this very well.  Many airlines are trying to set prices at what the market can bear, unfortunately often it costs them more to run the flight than they make from it.  This is the danger of market pricing.  But some airlines are staying in business and even doing well, how are they doing it?  By using the tactics we talked about in this article.  They know that the market demands one price, so they bring their costs into line with this.  For instance, if a certain flight (or for products, a distribution channel) cannot be profitable, they drop that flight.  Also some airlines have secured fuel contracts that keep their fuel prices under control, thereby making the cost of flying cheaper (like with inventors, finding cheaper ways of manufacturing or by sourcing their manufacturing overseas).  Also these airlines evaluate what customers value, and what the customers don’t value they eliminate, along with the costs associated with it.  It takes a lot of creative thinking to lower your costs and still keep value, but if you can do this well you will have a much better chance of making a profit.

It is worth while to evaluate your costs no matter what, since it will help you earn a larger profit, but sometimes you will need to really spend a lot of time so that your product is profitable.  Some people think that they can get by with a lower percentage of profit, or margin, if they sell more products, but this never happens.  The more products you sell, the more costs you have to sell those products, so unless you are charging at least twice the manufacturing costs, you will not make a profit.  One of the main reasons Wal-Mart has succeeded is that they know this fact and put it into practice.  They do not have low margins on their products; they cut costs so they can have lower prices and still have high margins.

Remember, let the market dictate what your product’s price should be, then make sure that your costs are in line with that.  Be creative, think outside the box, but get those costs low enough to make a profit.

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1. How to Price Your Product – Part 2
2. How to Price Your Product – Part 1
3. What to Do When Your Attempt to License Your Product Fails – Part 1

Many inventors have a hard time pricing their product.  Why is this?  It is because pricing your product is a very difficult task—one that takes weighing multiple factors.  The two main aspects you need to weigh are cost and market factors.  We will deal with pricing in a three part series, with the first part dealing with market pricing, the second part dealing with cost pricing and then the third part dealing with how to balance the two.

Cost pricing refers to setting your price based on your product and distribution costs. These costs will be different for the same product in different distribution channels.

There are many costs that are involved in running a business.  You have administrative costs, marketing costs, space costs, taxes, insurance, product development, employee benefits, incidental expenses, travel expenses, and the list goes on.  So when you sell your product, your price needs to be enough to cover all of these expenses.

The standard cost pricing formula is simple: retail price is four times the manufacturing costs.  The manufacturing costs include labor, parts, distribution, packaging and overhead costs for manufacturing and administration.  Doubling your manufacturing costs would typically give you your wholesale price if you were selling to distributors or retailers.  This may seem high, but many companies make a total profit of only a few percentage points, so it is not too high at all.

So where does the rest of the money go?  It goes into those expenses mentioned above: product development, insurance, etc.  This is why financial personnel in many companies are so important – if your company only makes a profit by a few percentage points, an adjustment in costs, either higher or lower, can mean your company will not make a profit or will be increasing their profits considerably.

So is pricing your product just as simple as four times your manufacturing costs?  Maybe, but you should consider all of your costs before you set your price.

Is there something about your business that creates higher costs?  For instance, in technological companies, the cost of developing new products is very high.  If you are planning on developing new products, which you should do, you will need to charge more for your current product to cover the costs of developing new products.  Or if you have a product that needs a lot of insurance, again you will need to charge more for your product to ensure you can make money.

Another factor in pricing your product is your distribution.  If you sell directly to retailers, your wholesale cost will be half of the retail cost, so your retail price will be four times manufacturing costs.  If you have more complicated sales, like through sales agents or representatives, who then sell to distributors, there are more people who get paid, so your retail price will need to be higher.  Different industries have different standards of distribution.  Some always sell through distributors, others not.  You will need to look into how many people your product will need to go through before the product finally reaches the consumer.  Each group has a certain mark up, usually expressed as a percentage of the price.  Once you have your manufacturing price, double it for yourself (or more as discussed above) and then count the costs of the distribution mark ups and then the retailer will sell the product for twice what they pay for it, so add another 100%, and this will be your retail price.

If you sell directly to consumers, your retail or final price can be much lower, but again, you can’t set your price too low, because there are many costs involved in selling directly to customers.  For instance, if you manufacture your product yourself, possibly in your garage, and sell the product on the internet, you might think that everything you charge over the cost of parts in money in your pocket.  This will not be true.  You will have product insurance costs, website costs, marketing costs (which will probably be higher than you expect), office supplies, telephone bills, etc.  But because of the lack of distributors and retail discounts, you can probably make a profit if you sell your product for twice the manufacturing price, which would include paying yourself for labor and overhead costs. This is why products sold directly to consumers can be cheaper than in retail stores.

Related posts:

1. How to Price Your Product – Part 3
2. How to Price Your Product – Part 1
3. What to Do When Your Attempt to License Your Product Fails – Part 1