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Designed a Product for a Company to Make and Sell - What % of each sale should I ask for?

jesseissorude

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An electronics component selling company asked me to design a kit for them to sell.

They sell all the components and would just bag up the kits and stick in instructions and sell it. No work on my end, but the product would have my brand name on them.

What percentage of the profit should I ask for?

After the COGS, what should I take of the profit? 50/50? 70/30? etc?

What would this be called? Licensing? Sort of drop-shipping?
 
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jesseissorude

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Who's marketing it?

If you're marketing it, I'd think they'd get paid for the components, the packaging and the shipping and you'd keep the rest. ...

They are carrying it on their website and doing some marketing for sure, but I am going to definitely drive traffic to it as well.

If they're marketing it, I'm not sure why you'd get anything since you're not doing anything.

That's why I sort of think it falls under the category of licensing. I designed it, and they get to use my business' name, logo, etc when selling it.
 

jesseissorude

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What do you mean you designed it? Is there any intellectual property? You said they just throw off-the-shelf components in a box -- if they did this without your permission (and without paying you), would you have grounds to sue them?

It's an electronic circuit that I designed using their parts.

As for putting your business name/logo on there, does that add value to the product? Is your brand valuable? Does it give them credibility (or something else) that they don't already have?

Yes.

My big point of confusion is that in your first post, you said, "No work on my end," but then in this post, you said, "I designed it..."

Which is it?

After designing the product for them, I don't have to do any fulfillment on my end. I'm not the one who fills the baggies, I'm not the one processing the orders, and I'm not the one shipping them out.
 

csalvato

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it sounds to me like this is a licensing deal.... structuring those deals is out of my depth though
 

Dwight Schrute

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Yup, licensing.
You designed the kit, therefore it's your intellectual property.

You could ask for 5-10% of the gross revenue.

Gross, not net profits.


Here's why:

With net, they can deduct the cost of fullfillment, material costs, refunds, overhead, salaries, rent...
...and you'll eventually end up with nothing.

Clients like to tell stories about bad economies and suppliers that get more expensive week by week.

To the IRS, their ex-wives, and to you, their net-profits will always be next to nothing.
 

OldFaithful

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@Dwight Schrute is on the money.

You might consider negotiating your take, politely of course. First, create some estimates of how many more they might sell with your branding, and how much it might cost to outsource the design of the circuit. Those are both real costs to the manufacturer, so divide them over a 3 year payback and you'll know how much it might be worth. Initially ask for 12% and gauge the response. Go from there.

Search & read some of the negotiate threads.

Best wishes.
 
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jesseissorude

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what's the lowest amount you would take and be happy?

Eek! I don't know. It is something that I never have to touch again if I don't want to, so it's about as passive as income can get.

If I'm getting 5-10% on every sale they make on this thing for years down the line, I'll be pretty freakin' happy. I'd estimate this product will be in their store at least 5 years before it needs a re-design... and thats a VERY conservative estimate.
 

jesseissorude

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... I would imagine that this circuit isn't something innovative, or the OP would be pursuing much more lucrative options then just handing it to a component manufacturer and telling them to bundle the components for their customer...

Yup! That's the situation here.

Much more complicated and unique designs I keep for myself, manufacture them, and wholesale them to stores or sell them on my site.

This situation was a component selling company being a fan of mine and asking for a few custom (but simple) designs that they could sell. Their big benefit is that--as component sellers--they get to sell a big bundle of their components at once in a kit.



Thanks for the help, all! I negotiated a deal that works awesome for me and the customer. I'll be getting roughly 14% of every sale, and I'll be sourcing the manufacture of PCBs and shipping it to the company whenever they run out.

Thanks again :)
 
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Scot

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Yup! That's the situation here.

Much more complicated and unique designs I keep for myself, manufacture them, and wholesale them to stores or sell them on my site.

This situation was a component selling company being a fan of mine and asking for a few custom (but simple) designs that they could sell. Their big benefit is that--as component sellers--they get to sell a big bundle of their components at once in a kit.



Thanks for the help, all! I negotiated a deal that works awesome for me and the customer. I'll be getting roughly 14% of every sale, and I'll be sourcing the manufacture of PCBs and shipping it to the company whenever they run out.

Thanks again :)


Awesome! Congrats on the contract!
 

jesseissorude

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Just curious who you use for your PCB manufacturing?

OSH Park for prototype runs, and Advanced Circuits or Sunstone for production runs
 

ZCP

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A chunk of money for the design or $X per unit/kit would seem to work in this case. Send them both options with some paperwork to sign and a place to pay online or send the check.
 
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jesseissorude

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Advanced Circuits


AC will also cut you a huge deal if you get a quote from them. You have to provide contact info, and later a rep will call you asking if the quote was reasonable for you.

This is the guy you'd negotiate with ;)

Just be honest and let them know your typical costs on previous runs. AC will definitely try to beat it. They want your business and do a pretty good job of making it worth your while to work with them if your counter-offer is reasonable.
 

jesseissorude

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Jumping back in to touch on a question in the thread that I missed

Have you had the company sign an NDA?

Back in my first year of doing this, I read a ton of blogs, books, podcasts, and other wannabe entrepreneur stuff about NDAs and they all made it seem like it was super important.

Honestly, I think NDAs are a vanity thing. Hear me out...

The only time one should be required is if you have an idea, and already got one huge investor. To protect that investor's bet on you, THEN you'd start having future investors sign NDAs. That way, if there's a huge amount of money your 1st investor loses because someone shared the idea, then that person would at least have somebody they could sue to minimize their loss.

Until you have an investor, your idea is worth absolutely nothing and an NDA is just a hurdle that you are asking people to jump over to get to you so they can give you money. I don't put ANYTHING between me and someone who wants to give me money, no matter how small that hurdle is.
 

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