If you’re an inventor currently researching or building an invention related to the sports industry you may be wondering how much it costs to build your own brand, develop a logo, brand identity and do all the marketing yourself?
Well, the short answer is a LOT.
The long answer is that if you do the market research and understand your sector inside out, you may be able to earn a lucrative licensing and distribution deal for your patented product that pays off BIG-TIME in the long-run.
This happened to a company called FLEXR, owned and managed by Jim McFarland who had patented a disposable sports bottle. For four years, he struggled to get shelf space in athletic stores and online retail sites catering to runners and cyclists. To make ends meet he kept has job at an aeronautics company but it was challenging just to break even.
His luck changed after he visited a trade show where a collegiate licensing agency asked if he would be interested in selling bottles branded with college logos. This meeting snowballed into a successful venture selling branded editions on campus bookstores and on school websites. His profit margins jumped from around $120,000 annually to almost $500,000.
Per Bloomberg, the sale of licensed products such as sports team logos and celebrity images reaches well over $100 billion each year in both the U.S. and Canada. The key to tapping this market hinge on understanding the value of licensing and how deals in this sector work.
“Licensing lets a small business effectively rent the brand equity that the owner of that intellectual property has built up over the years. In return, the business pays the brand a royalty—usually a percentage of the wholesale cost of the item,” said Bloomberg.
It’s crucial that small business owners considering licensing should estimate the cost of royalty fees and see if they are offset by manufacturing discounts, increased sales, and the higher price tag branded products can command.
Per Intuit you should consider yourself lucky if your licensing deal gives you 5 percent of the sales in royalties.
“Try to get a minimum guarantee: an amount you will get whether your licensee succeeds or fails with your product. Royalties are driven by many factors, including the strength of the IP and the market segment.”
A licensing industry survey released a few years ago shows growth in nearly every licensing category, with Entertainment, Trademark/Brands, Fashion and Sports merchandise being the key revenue drivers. These four broad-based categories together represented 94% of all licensed revenues towards the end of 2014.
However, we should caution you that the odds of success are low with some studies suggesting that only 13% of inventors – or one in eight – who attempted to license their invention were successful. This is typically another reason why it’s a good idea to work with board certified patent attorney early in the process. He can use his experience and success with past clients to help you navigate your industry sector and find ways to earn income early on.