You will need to take a step back and plan on putting just as much effort into preparing not only your product but also yourself as if you were going to launch this product on your own. Just as you would prepare a product for a product launch into retail, you have to put just as much effort into your licensing strategy for your product. Do you have samples? Prototypes? Have you developed any packaging concepts? Logo? Trademark? Business Cards? Sales Sheet? What will the product cost be to manufacture? Is it a plastic product, textile, etc.? If its a plastic product you will want to find out how much tooling would cost? What margins would the licensee work off of potentially for a retail launch? So on, and so on. Just by figuring out the cost of the product and working in the margins as to what a company would sell this for into retail will automatically allow you to forecast your royatly rates. If I have a landed cost of $10.00 per piece and I forecast a markup of say 75 up then I know I will be looking at a $17.50 wholesale selling price. Usually a reasonable royalty rate will be around 6% based on the net selling price. So all in all you would be looking at recieving around $1.05 per piece in royalties. Before you start contacting these companies you have to look like you did your homework. The product has to look like its ready to rock and roll. There is so much more to this but hopefully this will help.
Michael Bloom is President of Sinotech in Portland, Oregon, which has been engineering and supplying custom mechanical and electromechanical parts to clients across the globe for over 20 years. Michael is certified by the U.S. Small Business Administration as a Global Trade Counselor and by NASBITE International as a Certified Global Business Professional (CGBP). Michael received his B.S. in Electrical Engineering from the City College of New York, an M.S. in Counseling from Long Island University and has done doctoral work in Educational Administration at Hofstra University. He is the former President and current Board member of the Northwest China Council and an advisor to Portland’s Small Business Development Center. Michael is also a speaker for the Jewish Federation of Portland’s Hope for Peace project and a founder and officer of the Oregon-Israel Business Alliance. He has published more than 50 magazine articles and conference papers and has been quoted often in various media outlets on issues concerning China.