Today (about 3 years ago) was an interesting day in ASOTV licensing.    Those of you who know me realize my heart is the educate and inspire inventors to create great new products that can be licensed into the As Seen on TV distribution channel. that goes into mass market retail.

I’ve been at this for about 15 years total and three years ASOTV with serious focus growing this year because I believe it’s the fastest. least expensive way an inventor can make money on a product. even at concept stage.    I enjoy the freedom of not having to charge service fees. which gives me peace of mind since I don’t have to charge anyone any money.  Most products fail and about 90% of patents issues by the USPTO never see a store shelf so the invention business is not normally a quick or easy path to riches, but it is a path nonetheless.

I have quite a bit of experience in business, in general, and launching my inventor husband’s ideas but sitting on this side of the table is an eye opening and really fun experience.      I share the conversations below as a training tool for innovators.

A Tale of Three ASOTV Licensing Discussions

They start bad but end really well.

Let’s call the product, PickThick for training purposes….   This is a “Not So Great” Example for the MANUFACTURE and SELL invention strategy.

We had an initial conversation where a Term Sheet was sent to the Inventor of PickThick. A product already on the market selling in limited distribution.

This is an example of someone who wants to manufacture and sell their product and build a business around it.  They’ve experienced some sales success toward that goal.

I know this route well because it was my strategy for our SportsShade Canopy Awning product.     You can make more money in the long run, but the path is normally much more costly and difficult than you expect.   Having a strong background in business. strong capital reserves and a lot of persistence and tenacity.    Access to a pre-established distribution channel and sales teams is a must.  Funding product liability insurance, managing increasing manufacturing costs and expenses. protecting profit when faced with aggressive buyers who are trained to gain discount. managing massive vendor shipping requirements and navigating accounting issues are the norm.   Not to forget merchandising.  It’s one thing to get a product into the store and it’s quite another to merchandise it in a way that makes people buy it.     Single product vendors have a difficult time getting inside retail and doing well, once they do.

Pick Thick

Enter… a conversation with the inventor of PickThick. A product seeing some early sales success in limited distribution.    We like the item for TV and it makes it through three subjective committee reviews and a due diligence market analysis.  We’re ready to contact the inventor and offer a term sheet and licensing agreement with a guaranteed minimum first year royalty of $250,000.     If the product tests well, he makes millions in under a year.  If it fails, then released from the licensing agreement in under 3 months.

He was a very arrogant and rude man with a giant chip on his shoulder.  He said we’re all talking down to him because he’s this very accomplished businessman, which maybe he is????    But…. he’s spouting his relationship with Kevin Herrington from Shark Tank. (Which is the first clue he has no understanding of our industry because everyone inside knows Kevin is mostly selling services now.)

In any case, he seemed peeved that we are all trying so hard to get him on board and gave me a quick, “Don’t call me, I’ll call you.  I’m a very busy man.” brushoff… so…. he has our number and I’m not holding my breath.    As of July 17, 2016, I checked back with him.  He’s selling a whopping $30,000 in revenue a year and missed his window.  There are lots of similar products on the market now.  It hurts me more then it hurts him I think, because I know how much money we both lost, by the delay.

Furnace Friend

Started off rough but ended really well.    It began with him playing coy about his meetings with all the big name buyer (which is almost always a lot more hope, than actual sales opportunity.)   Then he went into the “if it makes sense, I’ll entertain it” mantra.    Even so, I pressed in and connected with him because I sensed he was a nice man who deep inside knows he needs an opportunity break.

Once the walls came down and I sensed we were having real conversation rather than guarded salesmanship, it really went well.   I called from the Will It Launch office and hunted Ed down, then had a three way call, where Ed was stellar and Paul was honest.     It ended with Ed agreeing to send the term sheet for Paul to review.    Seems like the product, inventor and investor may be a great match.    I liked the whole thing and believe the product has a real chance.

write to me at carrie@inventiveideas.com and let’s see if the next winner can come from you!

See you on the shelves!

Carrie Jeske

ASOTV Licensing

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Work and Play Well With Others

Investors don’t like to work with arrogant inventors no matter how good the product is.   People with money have a lot of options about where to spend it.  The best investors are those who’ve worked hard and will admit to a little luck in the process. They’ve been around the block a few times and reached a place where they can enjoy choosing to work only with people they like.   These are my kind of investors.    Generally, if someone is willing to deal with anyone and their brother, just to make money… they normally haven’t really made big money themselves.

So be nice.  The investor is there to help.  If you get a sense this is not the case, just walk away.    It’s not worth the time.

The Royalties

Inventors can shoot themselves in the foot by playing hardball on the royalty rate.  It may seem like the smart thing to do, but it’s not always.  Remember, the licensee is making a substantial investment with the hope of a return.  They are investing manpower, infrastructure, and time, normally on an item untested in the big leagues.

Sometimes, there is a need to bring in strategic alliances that were unanticipated on the front end, but whom increase sales potential substantially.  If the inventor played hardball and negotiated too much royalty, there may not be any slices of pie leftover to invite other inside.   If this is the case, eventually the manufacture will lose steam on the item and it may wash out, with the inventors’ royalty rate high and their earning meager.

I would prefer a smaller royalty rate with a motivated and dedicated manufacture, whose going to focus on my product and do everything in their power to see it successful.

Every industry has different inventor royalty standards.  Find out what range you should be in for your industry.   For As Seen on TV, short form 2-minute tv spots… the range is 1-5% to the inventor.   The more developed and tested the item, the higher the range.  The less tested and developed, the less the range.

The Term

The term may vary based on industry, product buying cycles and development plans.    Just ask questions and learn, then be reasonable.    As a general rule, the inventor wants a 12 month initial term with a renewing 24 month term, provided minimum royalty guarantees are met on licensing agreements.

What inventors don’t want is a long term and small minimum royalty because it allows a manufacture to sit on your item.  The best licensing agreement for the inventor is the one that insure focus on selling the product.   If they are not prepared to do that or if the product doesn’t prove out viable for that manufacture, the rights need to revert back to the inventor releasing the product to test in other distribution channels.

Minimum Guaranteed Royalties

If a licensee does not agree to some kind of minimum royalty guarantee, walk away.      It’s all about time vs money here.  The more time the product is tied up, the greater the minimum royalty guarantee.  The less time, the less royalty.

One example I recently saw was a 24 month term with a minimum royalty of $20,000.   To me that seems like a long term and low number.  Not a good plan for the inventor, unless you plan on doing nothing anyway.

This is a good time to discuss the manufactures sales plan and sales strategy.  They know their business and their capabilities, you do not.   Don’t attempt to add value here or pretend to know their business.    As the inventor, you’re looking to hear a reasonable approach to selling your item and gain licensing agreement on the minimum number of units or wholesale sales that they are comfortable with.     Keep in mind, both inventor and manufacture have the same goal.  Sell as many units as possible, in the least amount of time, at the highest profit.   Simple.   Stay on common ground.

Advanced Royalties / Inventory Purchases

It’s tough to get advanced royalties but possible.  Again, common sense comes into play.   If you’re asked to pause your licensing efforts to give them more time to evaluate the item, that’s worth some money.

If you have inventory available, licensees may be willing to purchase it at cost or wholesale value.

Know The Math & Understand The Language

Here’s a biggest gotcha that I see.   Understanding the language and the math is most important.  If you’re unsure, ask the question, then reword the documents so it’s clear.

Are inventor royalties paid off the gross profit, the net profit, the gross proceeds, or wholesale cost?

Gross profit equals Revenue less Cost of Goods.  Since the inventor is not in control of the cost of goods or what accounting method is used that defines Cost of Goods, this is not good language to be paid royalties by.   The inventor cannot control it and it’s intentionally vague.

Net profit equals Revenue less Cost of Goods, less expenses.   This is even a worse description to pay inventor royalties from because it allows the manufacture to deduct all their expenses from the inventor royalty.

Gross proceeds received from licensing royalties, is a term that’s been cropping up lately.    This is very misleading to the inventor and normally very costly too.    Many of the licensing agreements I’ve seen have the inventor earning 15-50% of the gross proceeds.    Sometimes inventors confuse this language, thinking this is a royalty rate.   As if they are getting a 15% royalty rate.    That’s not the case.   Here an example from our industry, paying a standard 3% royalty on wholesale price.

$11 Wholesale price x 3% royalty = $330,000 per million units sold.    If a company pays an inventor on the “gross proceeds received from licensing agreement royalties”, then the inventor earns a percentage of the $330,000.    It’s not a good deal when you can submit directly to Will It Launch and receive 100% of the inventor royalties.

A Win Win Win.

Just be reasonable and kind.   Give and take.   Figure out the aspect of the licensing agreement is most important to you and understand what is most important to the licensee.   A good agreement is when both parties compromise and when the licensee is committed to allocate resources that create product sales, to the best of their ability.

To submit your product, please review these other helpful blogs on the Inventor Corner, then send Carrie and email directly.

Submit Your Product for review.

Onward & Upward,

Carrie Jeske

copyright 2014 Jeske.  For reprint rights, please contact Carrie Jeske directly.

Licensing Agreement

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Q. Why don’t more companies work on commission only?  

A. Because it takes years of relationship building to attract the right investor group with the proper distribution channel and capital to make the product successful. 

Too many inventors want FREE help on the front end then start trying to cut commissions for the one who brought them to the dance in the first place.   Greed is not good.

For example, I recently won two inventors a term sheet with minimum guaranteed royalties of $250,000 for the first year!   It’s FANTASTIC.

Both had been unsuccessful with other avenues of licensing.  One asked me, “Would I make more if the licensee weren’t paying you on the back end?” 

The answer is “No, the licensee would make more.” and the inventor would make nothing because they wouldn’t have a deal in the first place.

I’ll take a small % of something over 100% of nothing every time. 

I prefer working with teams of people where each one’s contribution is recognized and rewarded appropriately.  

I choose to march onward and upward, helping inventors, on commission only, regardless of the presence of greed in my midst.

Those who agree, please submit your inventions and let us earn money together.

If you’re into social networking, please connect with me on:

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Carrie Jeske

royalty rates

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