Wondering how to license your invention? You will need to go through the required steps to make sure your invention is new and novel, and then find an individual or company that is interested in purchasing the rights to license your idea.

How to Make Money From an Invention

The first way to make money from an invention is referred to as “inventor for royalties.” Many inventors choose to license their inventions and either sell the idea to another business or individual or receive royalties on the product on an ongoing basis. The nature of the invention will determine which route is better. Some inventions are more complex or expensive to produce, which lend themselves more to licensing.

For example, if your invention is a large piece of machinery, you may not have enough space or the funds needed to mass produce the idea. By selling or licensing your idea, you may be able to work with a company that does have the financial capital to invest in production and get the product out into the marketplace.

However, each individual inventor can decide how to license their idea. Assigning rights or licensing the idea for a cash payout is often a less expensive and easier route than going through the process of manufacturing and selling a product. If you want to make a profit but would prefer to spend your time in a lab or office to develop new ideas, licensing may be the right option. An inventor for royalties agreement allows you to grant access to all rights to the idea in exchange for a cash payout.

However, if you want to receive royalties on a licensed product, you will have to come up with something unique that isn't considered a copycat product. Inventors often believe that if they write letters to big companies, those companies will become interested in the inventions and start negotiations, but this is rarely the case.

Entrepreneurial Inventor

The second main way to earn money from an invention is to become an entrepreneurial inventor. By choosing this route, you can maintain control over your business or idea. Many inventors choose to start small businesses to produce and market their inventions. If you want to become an entrepreneurial inventor, you need a competitive streak and some business savvy. Starting a business requires more capital since you'll need to develop, manufacture, and distribute the product.

For inventors who are more interested in entrepreneurial pursuits, the idea of licensing an idea might not be very appealing. A royalty is usually between two and 10 percent of the product's net revenue. Those who feel this way might prefer to maintain control over the idea by manufacturing, selling, and marketing the product.

In order to succeed, starting a small business will require more financial assistance than licensing the idea. In a study conducted by Westrum and Zimmer, almost half of the inventors who chose to produce and market their inventions themselves claimed success in their endeavors.

An inventor with a strong drive to succeed tends to thrive on challenges and have more success in running a small business. Some of the challenges that might come up include:

  • How to acquire the distribution process
  • How to improve efficiency in manufacturing
  • How to make a profit in retail sales
  • How to market the product to the target audience

Advantages and Disadvantages of Marketing and Manufacturing Your Invention

As you consider how you want to move forward with your invention, compare the pros and cons of manufacturing and marketing the product yourself. By starting a business, you have the potential to earn more financial rewards. For inventors with entrepreneurial spirits, the potential for larger gains is often the driving force behind this decision.

However, the process of manufacturing a product can be very challenging and overwhelming. Marketing a product is also difficult, and this route comes with considerable risk. As a business owner, you're responsible for every aspect of the success of the company, which can take over your personal life and lead to anxious feelings.

Licensing Your Invention vs. Going into Business

Before you make a decision on how you want to proceed with your invention, you should understand the two main options.

If you need help with how to license your invention, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.