When it comes to working with retail buyers there are a few things all inventors have to keep in mind.

1. Don’t skimp on your margin. Offer 50% or better to the retail store you are selling to. Stores know the margin they need to hit to succeed and most need at least 50% if not upwards of 60% to be profitable.  If you offer your product at a mark lower than 50% you run the risk of getting ignored no matter how great your product is.  Or if your product does get picked up it most likely won’t be featured as retailers need to push the products that provide a healthy margin.

2. Ship FOB, but if the Retailer wants you to ship pre-paid and add do not add a ‘handling fee’. This is not only tacky, but it is not considered acceptable.  You can only add an extra fee if you’re shipping individual units.  This is commonly referred to as a drop ship fee.  A typical range is $2-$5.00 per shipment.  Your cost should be based on your box cost, packing materials and labor. Drop ship fees are generally per order, not per unit, however if your item is ordered for inventory a drop ship fee is not acceptable.

3. Give Net 30 terms and don’t be afraid to ask for your money if the retailer is late. If you are worried about getting payment you can always seek references, but to gain the business you should provide net 30 terms.  You can always refuse to ship order #2 until order #1 is paid or if the retailer is notoriously late you can request credit card payment or drop them all together.  Conversely if you don’t originally grant Net 30 to open the account you most likely won’t even have the chance to adjust later.  Lastly, if a retailer is late paying assume the invoice was not received or was over-looked, most retailers pay promptly after a friendly reminder.

4. Only submit your product to retail stores that are a fit. Buyers are busy and to waste their time is not only a waste of your time, but could be perceived that you are poorly prepared or that you have not taken the time to research the store you’re pitching your invention to.

5. Freely give a sample if requested, but never pay for overnight shipping. Samples are commonly needed by buyers and the review process is important.  What’s not generally important is how fast the sample is received.  Shipping overnight is costly and typically doesn’t gain the product any extra advantage.

The first rule of pricing is: “Price the product based upon what the customer is willing to pay… Not what it cost to produce it.” The consumer is buying what the product will do for him/her. The (retail) price is how much the consumer values that item.  What the supplier (inventor/entrepreneur) essentially is doing is extracting the difference between the cost to produce and that “consumer product value”… This is also known as profit!

But how do you figure out a price “starting point” on a new product? What I’ve done successfully in the past is: 1) Find where the competition is for a similar product. If the next closest similar product is (ex.) $20, then figure your new and better “mouse trap” can fetch $25 (20% to 25% higher). 2) Then, work your production cost backwards from the $25 retail price to figure out your maximum cost to produce the product.

Generally speaking, the maximum net production cost (labor, raw materials, packaging, shipping boxes, etc.) should be about 20% of the retail price (assuming you’re selling through a retailer). This should generate enough revenue to cover you, your overheads (Advertising, G&A, etc.) and the Reps and Distributors…While, at the same time, giving the retailer enough margin to put the product on the shelf.  Therefore, going back to our $25 retail price example, the maximum net cost to produce this product should be about $5.

When introducing a new product, always start with a higher retail price than you think the consumer will pay. You can always lower the price later if it’s too high, but it’s nearly impossible to raise the price once the product is on the retailer’s shelves.

Note from Jeff Gawronski:  Paul hits the nail on the head!  Those who have a new product invention could have a cost as high as 25% of retail, but any more puts the new entrepreneur in a risky situation.  What I have also seen and will touch on in a future post is the greed that takes hold of some inventors. Just because your new product could sell for more and your profit can be larger this is something that should be cautioned.  ’Why?’ you ask.  The reason is that if your pricing is set high you open the door for a smart business person realizing that there is room to sell a cheap knock off.  Make a great product, price it right, gain marketshare and you’ll also make the copy cat products less likely to succeed.

Paul Tuttobene is also an inventor that took an idea (Buck Magnet) and made it a reality.  He shares all the highs and lows in a must read book titled ‘INVENT-ONOMICS’  If you have an idea for a product invention before you go any further you have to read this book.

When Lightening Strikes and your mind is electrified with that great invention, what should you do first?

Not always so graphically, but this question is often raised during my workshops and inventor organization visits across the country.  In a nutshell, this is the advice I usually offer.

First step, when that lightening strikes: take good notes.

No, not in a letter addressed to yourself.  That only works in songs like “Rikki, don’t lose that number.” Instead, jot it down along with a sketch in an inventors’ notebook – - nothing fancy, just a dime store composition notebook with fixed pages. Follow-up with regular updates on your concept development.  Use ink, date the entries, number the pages and occasionally invite someone who can understand your invention to read, sign, and date your notes.  BTW, this witness should not be someone who would benefit from your invention if he or she ever had to testify on  your behalf in a Court proceeding.  Keeping a journal takes little effort but lots of discipline, and should be started early in the process, even before the smoke from the lightning bolt clears the air.

Second step: validating your invention takes considerable effort.  It requires research and is certain to tie up a lot of weekends.  Your objective is to figure out if your invention is really new – - or if you’ve simply been clueless to what’s going on in the rest of the world.  You also have to figure out if your invention has potential in the marketplace.  For example, you need to know what people already are using to address the same problem or obtain the same benefits.  You need to get your mind around the marketplace competition.  I recommend inventors split their efforts between market research and patent searching.  While most inventors are quite familiar with typical marketplaces (brick ‘n mortar as well as web-based), relatively few have stepped into the world of patent documents.

Patent searching is an art, and a full time vocation for a vast number of professionals. It’s also something that most anyone can tackle with a bit of diligence and modest computer skills. It may surprise many of you that one of the easiest places to begin patent searching is with the good old Google® search engine.  Amazingly, it differs little from any other Google® search.  In the Google® listing of services and products, choose PATENT SEARCH.  Here’s a quick example. Let’s say I’ve invented a combination stapler and laser pointer.  Hey, that’s gotta be new! I simply enter the terms: > > stapler laser pointer  < < and see what comes up. Uh oh. Not so new after all. Practice on the basics, then move on to the “advanced” search and follow the engine search tips.  Read some patent documents to see how they’re written.  Note that the patents discovered in your search almost always refer to other patents that were cited in the initial examination…and to later issued patents where the discovered patents were cited in the examination of subsequent applications.   Interestingly, the Google® engine includes nearly all US Patents back to 1790 and they are term-searchable.

The US Patent and Trademark Office home page can lead you to the USPTO patent search pages.  There, it’s fairly easy to search US Patents and Published Patent Applications by a wide range of searchable fields from document text to inventor name, technology category classification and more.  Try it out.  Lot’s of other sites to discuss.  Get back to this blog with your input or questions and let’s yakaboutit!

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About Don Kelly (in his words): Hi…I’m Don Kelly, patent agent, certified licensing professional…and an ardent fan of Yakaboutit. I live at www.patentagentplus.com …and can always be tapped for some free advice…for what it’s worth )   Above are some tips for inventors with great ideas.  Please let me know what you think…especially if you have informative comments or additions.  I’d like to make this a highly interactive, informative blog…but not so complex that it defies understanding.  Feedback on this sample would be most enlightening.  And don’t pull any punches.  I’ve been around so long those punches simply add to my addled nature.