Should I License My Product Idea for Royalty Fees?

By Brad Sugars

Opinions expressed by Entrepreneur contributors are their own.

If you have a product idea but don't have the ability to bring it to life, is it better to obtain a patent and then sell it or license it for royalty fees? I know a number of companies offer royalties for ideas, but are these fees sizable? Or are they just a way for these companies to lure you in and cash in on your idea?
If this is the type of arrangement you choose to make, you'll need to do a lot of due diligence. It's best to talk to people who have actually done this to get an idea of the "ins and outs," as well as the advantages and disadvantages.

The reality is there are very few new ideas. Even "breakthrough" ideas and products like the Apple iPod were designed and conceived many years ago, based on prototypes that were derivative of technology at that time.

Knowing this, ask yourself: Is there a company out there that's doing something similar to what I have in mind that I could approach to help them sell that product to a new market they haven't thought of?

If, on the other hand, you would rather be an innovator, you still need to have a market in mind and your product should be able to solve a problem, meet a need, quench a desire or offer a solution to that market. That way, you can aim to get investors on board or build inexpensive prototypes made by a manufacturer who may be willing to take a percentage of your sales from future revenues.

The bottom line is you want to retain as much ownership over your ideas and products as possible. You should be able to come up with several ways to do this while being able to outsource the actual production of your product -- all while keeping your costs low at the start.

Don't put all of your resources into one "basket." Instead, start small and gather, beg or barter for the resources you need. Test the marketplace. You might find 10 more ideas for possible products or services from your experience and you may find in the end those paths are more marketable and profitable for you.

Related: From Idea to Market
Related: The Complete Inventor's Guide
Wavy Line

Brad Sugars is the founder and chairman of ActionCOACH. As an entrepreneur, author and business coach, he has owned and operated more than two dozen companies including his main company, ActionCOACH, which has more than 1,000 offices in 34 countries.

Editor's Pick

'Catastrophic': Here's What You Should Know About the Debt Ceiling Crisis — And How a Default Could Impact Your Business
I Helped Grow 4 Unicorns Over 10 Years That Generated $18 Billion in Online Revenues. Here's What I've Learned.
Want to Break Bad Habits and Supercharge Your Business? Use This Technique.
Don't Have Any Clients But Need Customer Testimonials? Follow These 3 Tricks To Boost Your Rep.
Why Are Some Wines More Expensive Than Others? A Top Winemaker Gives a Full-Bodied Explanation.

Related Topics


The Real Reason Why The Return to Office Movement is Failing is Revealed in New Study

There is a vivid sign of the disconnect between employees and their workplace, a glaring indication that companies need to revise their scripts to improve their hybrid and remote work policies.

Money & Finance

3 Ways to Create Multiple (Big) Streams of Income

Here are three ways to create multiple streams of income. These strategies require effort and resources but offer significant financial potential.


'That '70s Show' Star Convicted on Two Counts of Rape. He 'Drugged' His Victims.

Danny Masterson was accused of forcibly raping three women at different times between 2001 and 2003. The jury reached a verdict on two counts but was deadlocked on the third.


Working Remote? These Are the Biggest Dos and Don'ts of Video Conferencing

As more and more businesses go remote, these are ways to be more effective and efficient on conference calls.

Growing a Business

The Best Way to Run a Business Meeting

All too often, meetings run longer than they should and fail to keep attendees engaged. Here's how to run a meeting the right way.


12 Good Reasons to Explain Why You Left a Job During an Interview

Not sure what to say when asked why you left your last job? Check out these reasons so that you have a great answer on your next interview.