Question

Topic: Strategy

Royalties Program

Posted by Anonymous on 1/29/2011 at 8:18 AM ET 250 Points
Does anyone in this network have any experience creating a Royalty type program? What I mean by this is; we find a company to produce a certain product, sell it to several companies world wide, and the client/inventor collects royalty fees from each sale.

My client and I have been targeting stores like WalMart, Zellers (soon to be Target), and many others. I knew this process would be long and would eventually be profitable, but after working several months on this, I am thinking Royalties might be the way to go. My concern is finding the right company to deal with. Oh! This product is patent pending, both US and Canada.

If anyone has experience in this area, I would love to hear from you.
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RESPONSES

  • Posted on 1/29/2011 at 11:04 AM Accepted
    I'm not sure I understand. Are you going to actually purchase the product before you sell it to retailers, or are you hoping to find someone who will give you exclusive rights to market their product(s) and pay you a commission?

    Or are you thinking that someone might pay you or your client the royalties and take care of all the manufacturing and marketing themselves?

    This latter is the most difficult, because retail distribution in the US/Canada is a very competitive arena ... with hundreds of thousands of products competing for very limited real estate. You'd have to have a really remarkable product to get one of the companies that know this business to deal with you.

    The up-front investment is huge, so nobody is going to be eager to enter a royalty arrangement before they have reason to believe the product will generate enough net revenue to payback the initial investment and generate a fair profit.

    Have you done the market research to confirm that the demand is there for the product? If not, that's the place to start. Nobody will want to take a risk by investing in an unproven product concept.
  • Posted on 1/30/2011 at 7:38 AM Author
    We are looking at the latter because we already have the product, have done our research, and may have even found a company to manufacture it.

    Our goal is to find a company who is connected and has the resources to produce and sell this product for us.

    Because this is new to me, I want to make sure my client is covered and we both make a nice profit on this project.

    Suggested retail for this product is between 14.97 to 19.97. Production charges for 5000 units and above is 3.97/ unit. Currently our wholesale price point is 9.97.

    The presentation I created is impressive, but I do not have connections, nor do I think it is worth while for me to do all the leg work of contacting and traveling world wide to build relationships with them with the hope that they will give us a chance and be willing to at least test the product in their stores.

    I am certain there are people and companies out there who are already connected, have already built the relationships with several retailers, and could sell many more units much faster than my company can.

    I need some assistance in creating the structure of the program and possibly finding some contacts of companies that work with Royalties.

    Hope this clarifies a bit.
  • Posted on 1/30/2011 at 8:09 AM Accepted
    Thanks for the clarification. Now I think I understand what you want.

    As noted, you're taking the most difficult route because you want someone else to take the huge financial risk AND pay you for letting them do so.

    I've gone through this with several different companies (and entrepreneurs), and I know the drill. Assuming you have the great presentation and operations nailed down, you want investors as much as anything.

    You want a company that has invested in learning the ropes of retail distribution in the US, knows how to negotiate slotting fees and mandatory promotion programs, and has contacts at all the major retailers. And you want them to finance your marketing program -- probably to the tune of several million dollars. (Inventory and receivables will be huge if you're really serious about this -- not to mention the hard up-front costs of securing distribution.)

    Without knowing any more about the product or category, I would not be optimistic that you'll find the White Knight you're seeking.

    Are you aware of any other product that has been a retail success using the kind of approach you describe? The most likely prospect is a company that's already in the same industry, serving the same target audience, through the same retail distribution channels. And they typically don't take on arrangements like the "royalty" approach you describe.

    I think you may need to reconsider your strategy. Sorry I can't be more directly responsive to your request, but I'd be doing you a disservice if I offered encouragement that would likely not pan out for you.

    I've heard the tune before and know it well.
  • Posted by Jay Hamilton-Roth on 1/30/2011 at 8:55 AM Accepted
    Contact me off forum. I know someone who might be able to take you to the next step (he's got a lot of niche products & distribution channels) and consult with you further.
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