By Cliff Ennico
“My daughter, a full-time college student, has made money in her spare time making customized covers for her friends’ smartphones and mobile devices.
We are thinking about turning this into a real business. We’ve spoken to a local patent attorney and he’s optimistic we will be able to get a patent on my daughter’s design. All of the graphics she uses on the covers are original so we’re also optimistic we will be able to copyright most of them.
But the process of manufacturing these products is very intimidating. How do we go about doing that?”
With a product like this, you have two basic choices: the “high road” and the “low road.”
The “low road” is fairly easy. You sell a few items each month, make each one by hand, and advertise them locally – notices on campus bulletin boards, booths at local crafts fairs, an ad in The New Yorker magazine, (maybe) a listing on etsy.com which focuses on handmade crafts items.
If you are following the “low road” with low sales volume you need to price your products as high as possible, at least $30 to $50 per cover. If you are customizing each cover with the customer’s name, her pet’s name, or something unique to that individual, you can charge even more, maybe $50 to $75 per cover.
You won’t sell a lot of covers following the “low road,” but it will be easy to do and will generate a fair amount of extra income. Also, and forgive me for saying this, but it sounds like neither you nor your daughter have the free time to build a fast-growing business of any kind. If someone orders 100 covers for delivery next week, you have to say “no”. Until one of you is ready to devote herself full-time to this business, the “low road” is the right road.
The “high road: is all about fast growth and developing a mass market product. Here are the steps:
- You will need to find a manufacturer who can put together an estimate of the cost of manufacturing your product at different quantities of production (the cost of producing 500 covers will be more than the cost of producing 100 covers but will usually result in a lower cost per cover);
- Since you don’t have the time to make, market and sell the covers yourselves, you will need to license your product to a larger company that will take care of all that and pay you a royalty on sales (usually 5 percent to 8 percent); and
- You will need to work closely with the large company on an ongoing basis to make sure they maintain your desired product quality and to help manage any changes in the product that may be necessary for mass marketing (for example, if you need to use a lower quality of fabric to keep the retail price low, will the covers fall apart with ordinary use?).
Here are some questions you will need to answer before pursuing the “high road:”
- Where can I find a manufacturer to provide the cost estimate? Search online for “[your state] association of manufacturers.” Most states have a trade association of local Mom and Pop manufacturers who will be eager to work with you.
- How do I deal with these manufacturers? Deal with several of them, ask for a “nonbinding competitive price quote,” and be sure to get a nondisclosure agreement (NDA) from each of them before showing them details of your product design.
- Should I talk to a manufacturer in China? While your large company partner will almost certainly be manufacturing your product in Asia, they will not expect you to find the best deal for them. If you must talk to Asian manufacturers, use services such as www.globalsources.com and www.asiaconnection.com that “certify” them so you know you are dealing with reputable companies.
- How do I license the product to a large company? I don’t recommend doing this yourself. Large companies will be more comfortable dealing with a “licensing agent” who specializes in this type of merchandise. To find the leading national agent firms, check out www.inventorsblackbook.com. You should also search “[your state] inventors association”. Most states have associations of inventors, and these organizations almost always have licensing agents as members.
- How do I prevent the large company from stealing the product? You will need a good lawyer to negotiate your license agreement with a large company. The nondisclosure clause should be ironclad, and there should be specific language in the agreement preventing the large company from “reverse engineering” your product.
The best protection, though, is to keep “on top” of the relationship with your new partner: don’t let them just take your product and run away with it. Make sure you have the right to approve any product changes they recommend, and that you own the intellectual property rights to any “modifications, improvements or enhancements” to the product.
Cliff Ennico (www.succeedinginyourbusiness.com), a leading expert on small business law and taxes, is the author of “Small Business Survival Guide,” “The eBay Seller’s Tax and Legal Answer Book” and 15 other books. Follow Cliff: @cliffennico.
