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By Carol Rehtmeyer
Licensing Pros:
1. There's low to no cost or risk to license your idea.
2. Royalty stream can continue for many years.
3. There's always the opportunity for line extensions and ancillary licensed goods!
4. Companies will pay a portion of the expected royalty in an advance payment.
5. The company that licenses your item will pay for nearly everything including patenting, packaging, engineering, design work, production, sales, promotion and more.
Licensing Cons:
1. Few items get licensed
2. You have little to no control over anything
3. A company may enter a licensing agreement and not actually produce the product
4. A company may produce your product but do a very bad job in production, distribution, etc.
5. Products that have not produced well, but have entered the market place can be very difficult to successfully reenter.
6. Sometimes collecting royalties is a problem
7. If the sales are not strong, you make no or very little money. A small company may not produce enough royalty income to cover your legal expenses.
8. A typical royalty lasts for 3 years
9. Companies always want worldwide distribution, but may not have any ability to sell product in these territories. You could get locked into a deal that may not allow you to sell product in some territories.
10. Most companies require the inventor to participate in markdowns, returns, damaged goods and more.
11. It can be a long day to "pay day" as the actual royalty is not paid until the quarter following the product sales. This can be more than two years out in some cases!
12. Sometimes companies demand a "shared" or reduced royalty if one or more inventor groups have been involved, or if the product has a popular license brand attached to it.
13. A company may attach a license or "brand" to your concept without your say or approval.
14. You will probably need a licensing agent who can open many doors, but will demand anywhere from 25% to 50% of your royalty revenue.
Self production Pros:
1. You have control over all aspect of the product from the look to the quality to the way in which the product is marketed.
2. You "run your own ship".
3. You can make a lot more money. Instead of a 5% (or less) royalty, based on the wholesale selling price of your item (as with licensing your product concept), you make your own determined margin-- maybe as much as 51% from cost of goods. Based on an item that would retail for say $14.99, you would make approximately $0.37 cents per unit sales on a royalty basis, but would gross approximately $2.50 an item if you were to produce and wholesale the item yourself.
4. You can build a brand and brand identity.
5. You can build a company and value to that company.
6. You can always license later-- at a higher royalty than average if you have some sales behind your product.
7. The toy industry is a very exciting one.
Self Production Cons:
1. You have all the risk of running your own toy company.
2. Even if you have a great product, you still have to sell it.
3. Retailers can make very unrealistic demands so you take all the risk
4. Manufacturing or other delays can be deadly to a time sensitive product
5. It is very difficult to sell a "onsie" (just a single item-- no product line, no line history) to a retailer.
6. Credibility with retailers may be an issue.
7. Sales reps can be most beneficial-- if you get the right ones. They charge a commission between 5 % to 15% depending upon the product and market.
8. You may need to promote or advertise your product.
9. You will need to have or raise a fairly substantial amount of capital.
10. The toy industry can be a very demanding one.
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