Forums: Discussions for entrepreneurs and small business.

We have a new exclusive product we are bringing to market, we also are
outsourcing our production. The owners of the production facility want to
sell our product also to their customers. How and what is the best way to
deal with this situation so we can benefit from their sales? A Sales license?
OEM Agreement? Or A profit Sharing agreement? We think a Sales License
would be the easiest for a up front fee thay can sell what they like, but we
loose if they sell tons of our product. With Profit sharing we would need to
be able to audit their sales to make sure we are getting what is owed to us.
With OEM deals we would loose any branding or market share on our
company`s name. What would you do?

If you license, you will benefit from the royalties - don`t make it a flat fee but a % of sales. Agree on an independent audit of sales. You want this regardless to ensure that everything is above board. Last thing you want is one legitimate production shift and one night shift producing for a different market/grey market.

If you don`t license, what`s to stop the production facility from selling it? Unless you`re there to watch over them, it could make it into the grey market pretty quickly.

Would the product be under your brand or are they proposing/amenable to private label? If it`s your brand, then you will have to be careful on how the brand is managed - what if their customer service sucks and everyone bad-mouths your brand since that is really all they see?

Tough to say what I would do - need more information.


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