A Million Dollars in Royalties

A Million Dollars in Royalties

A million dollars is a lot of money, but should it be your goal as an inventor?


When you license an invention to a manufacturer (or informercial or other kind of company), you are in a “royalty position,”  which means you earn royalties.  And royalties are usually 3% to 5% of the net wholesale price.


Let’s look at how this adds up: The manufacturer sells the product to the retailer for half of the retail price.  For example, if your product will sell at retail for $20, then the retailer will buy the product for roughly half of that, $10.  (This wholesale price varies by product type, number of units ordered, co-op advertising allowances, and so forth, but is typically 50% of the retail price.). As the inventor you will receive about thirty to fifty cents per unit sold, and you get paid every quarter plus 30 (sometimes 45) days.  By the way, your first royalty check may not come for as long as twenty four months.


So, with those numbers at a 5% royalty (50 cents per unit), two million units have to sell before you get your (pre-tax) $1,000,000.


Is that real?  No.  A handful of best-selling products might sell a million units–maybe.  But most products t sell only a few thousand to a few hundred-thousand units.


The way to make money at the inventing game is to invent a lot of things–build lots of prototypes or models, and then pitch them.  Really fill the pipe line with products.


Fifty cents per unit may not sound like a lot of money, but if you have a fitness product in Dick’s Sporting Goods stores (all 518 of them across America), and they sell two per week each year per store, and you receive fifty cents per unit, that’s $26,936 passive annual income. Nothing to sneeze at, especially if you have more than one product out there earning you money… even while you sleep. Oh, and if two of that same product sold each week of the year in each of the of Walmart’s 3,000 Supercenters in the U.S. that would be a grand total of $156,000 a year.


So forget about that million dollars.  I think that fifty cents is worth bothering with.


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