Blog

Chances of Success

The Patent Pending Blog has a great post on the chances of success for independent inventors. The bottom line: 5% or so of the independent inventors that Bob Shaver sees actually winds up making money off of their patents.

This is why the first piece of advice for all independent inventors, especially first timers, is to do a business plan before spending money on a patent.

What I suggest is writing a business plan for a large company in the market that might like to license the invention. This hypothetical company needs to see a definable advantage to the product in their marketplace with their margins.

I have a few rules of thumb for consumer products. For very high volume products, the driving cost tends to be raw materials and not other processing. “High volume” for manufactured steel products may be 250,000/year, while “high volume” for electronic components may be billions per year. A rule of thumb for most high volume products is that the manufacturing cost is roughly equal to 150-200% of the raw material cost. The cost of steel is roughly $0.33/lb and plastic is $3/lb as a starting point. Thus, the plastic product that weighs 3 lbs would cost somewhere around $12-18 to make.

Mark up for one industry may vary, but a 10X multiplier between manufacturing costs and retail prices is not unreasonable, and anything less than 5X multiplier is probably not worth pursuing. So that $12 product should be comparable to a $120 retail product on the store shelves today.

I advise clients to research the particular industry of their invention, find the big manufacturers, determine their nominal costs, guess their markup percentages, and figure out what kind of return they expect. If the product undergoes this scrutiny and still looks favorable, the inventor should feel comfortable fronting the money for the patent.

One thing I always counsel clients is to do the research themselves, at least as much as humanly possible, for two reasons. The first reason is that it is very inexpensive to go to a retail outlet, chat up the salespeople, and find out how many of a certain product that store sells. The second reason is that they need to understand the complexities of what they are starting, and they cannot and should not farm this type of market study out to some unscrupulous shyster who will give them whatever marketing hype they want to hear. There is no excuse for the inventor/entrepreneur-to-be not to have dirt under his/her fingernails.