License or Manufacture? Deciding What to Do With Your Invention

Advance against royalties. Common in the low thousands; treat any advance as goodwill, not income.. Minimum annual royalties. Essential — without them a licensee can sign, shelve the product and lock up your rights.. Exclusivity with performance tests. Grant exclusivity only where sales targets keep it alive.. Field and territory limits. Licence one category or region and keep the rest.. Termination and reversion. Rights must return to you if the licensee stops selling.

Most licensing rejections are not about the idea. They are about a submission that cannot be evaluated: no prototype, no cost, no protectable claim. Our prototyping guide and product discovery process cover getting to that package efficiently.

The product fits neatly into an existing company's line and distribution.. You hold a granted patent with claims that are hard to design around.. The category is dominated by a handful of buyers with locked-up shelf space.. You have limited capital and no appetite for inventory, returns or support.. You expect to keep inventing rather than run one product for a decade.

Your advantage is brand, service or community rather than a defensible mechanism.. You can reach customers directly online without fighting for retail placement.. Gross margin at a realistic retail price is comfortably above 50%.. The product needs iteration in the market that a licensee would never fund.. You want to build a sellable business rather than a royalty stream.

Most physical consumer products licence at 3–7% of the wholesale price, with toys and games at the higher end and low-margin housewares at the lower end. Software and digital IP command 10–25% because marginal cost is near zero. Rates above these ranges are rare unless the patent position is exceptionally strong.

In practice, yes. A licensee is paying for exclusivity, and without at least a filed application there is nothing preventing them from producing the product without you. A pending application can be enough to open conversations, but most deals are signed or repriced around what the granted claims actually cover.

Cheaper upfront, yes — typically $5,000 to $50,000 for IP, a prototype and a sell sheet, against $50,000 or more for tooling, inventory and certification. But licensing has a much higher failure rate at the deal stage, and even a signed deal pays a fraction per unit of what selling it yourself would.

Nine to twenty-four months is realistic from a finished submission package to a signed agreement, and many products never find a licensee at all. Companies review submissions in cycles tied to their product planning calendar, so a miss can add six months regardless of how good the idea is.

Yes, if the agreement is scoped carefully. Licences are commonly limited by field of use, territory or channel — for example licensing retail distribution in North America while retaining direct online sales. Any such carve-out has to be written into the agreement before signing; a broad exclusive licence removes the option entirely.