Thanks for the info Mark!

Thank you, Mark – reinforces my past ‘deals’: you cannot believe how many of my friends told me I was nuts to agree with the low figures for me and high figures for ‘them’.

I was selling the original pillowcase for $24.95 when one catalog (The Vermont Country Store) wanted it, and offered me $7.35 each. I asked for $9.00 and we agreed on $8 so they could sell for about 32% more, $24.95. After they purchased and sold 600, they did not renew the contract because the quantity was too low for them to bother with. Then, another catalog (Sleep Solutions) wanted the product and I just couldn’t sell for $8 as my costs were pretty close to that (the price one pays to keep the manufacturing in the United States). I sold to the 2nd catalog for $9.50 each and they sold them for $30 but only purchased 300 and did not renew the contract because, as they said, “selling a product which never existed before was just too time-consuming and not cost-effective” (extra explanation and marketing, I guess). When you take into account the purchasing of shipping cartons, tape, labels, etc., the actual profit isn’t anywhere near as great as the catalog’s profit.

And, for those who question EN, or anyone who thinks they can do better on their own, I must tell you that If EN can get a contract for me, I would be happy with the percentages.

No worries Mrs. Pryor…happy to help. :)

So Julie in the first deal they made 67% and in the second deal they made 68%….and what % profit was left after you manufactured, packed, and sold….your $8.00 product?

I should point out here that this math isn’t what you may have seen in school. Normally if I buy it for $5.00 and sell it for $10.00 I have made 100% profit….and that’s true. However that’s “gross profit” (or gross sales, or gross margin – sales before expenses) In the case of the retail profit calculation it’s what we call a “Loaded Profit” (Net profit, net margin, or net sales) Profit (in it true form) is the money left over after expenses so technically there really isn’t any such thing as “gross” or “Net” profit…just profit.

At any rate, the reason a retailer uses this calculation is that to get a real profit number you have to know the overhead associated with the “cost of sale” and a retail buyer would not have that information. So, some smart person came up with this math problem that no matter what your overhead is, you are likely covered using this equation. It must work because almost everyone in the industry uses it.

That is how the retail end of the process works. When you license an idea to a manufacturer you are on the manufacturing end of the process. That math looks a lot different than the retail end. On the manufacturing end all the numbers are contained in that front ½ of the price (Julie’s $8.00, not the retailers $24.00) Within that $8.00 it has to be manufactured by a factory, shipped to a fulfillment company, fulfilled, sold, discounted, displayed, (and often shipped again) and the license/inventor royalties must be paid…..oh, and if there was tooling it has to carry part of the tooling cost as well.

Looking at just the royalty – the license royalty is a % of the sell in price ($8.00) and the inventor royalty is a % of the license royalty – often times minus expenses that may have been incurred in the licensing process. On top of that if the licensing company used contacts to get the deal, there would even be an additional % taken out of the royalty to cover that as well….in the end you are often looking at a % of a %, of a %

As you can see, there are two sides, the manufacturing math, and the retailer math – each has the same goal, to cover cost and make money, but on either side if the deal has too many hands in it you will never get the math to work out, and the product never gets to the market.

Boy, you are good!

Nicely valid.

Thanks Julie – it is what I do for a livng :)

Mark

definately some math!

Great information Mark, thanks!

Mark and Julie, Thanks for the excellent information !

No problem – use it to think about how you can make your idea even better. In fact, I would bet that if you put your ideas through the process of lining up the planets we talk about on the Inventor’s Mentors Library you would get to G8 every time.

http://theinventorsmentors.forumo.biz/forum.htm

Why do I say that? Because at the end of the day it’s making sure your idea fits well into what the manufacturer is going to have to do to develop it. So when it’s presented to the manufacturers and the planets already line up – well it’s a no brainer for them.

We should test this theory and see if it works, or even better. Take some G8 selected products and see how well they lined up.

That would be interesting

Mark

Thanks Derek, but not really….ok, maybe just a little…. JUST KIDDING!

Most of what you listed here is true, not because the ideas are bad – but because people rush off to get a patent on something they have no plan for.

PLEASE…the Patent Lawyer, just like the CAD guy, and the sell sheet lady, and the designer, and the web site builder all want to sell you something. They may all give you a good value for your money, but in the end, they could care less if you get it to market.

There are several consultants out there who will (for a fee) guide you through the process and greatly increase your chances of success. If I were starting out with a great idea and wanted to get it to market, I would first find every resource available to help me understand the process. Then if I had to spend money, I would invest in a “guide” someone to show me the ropes and tell me what to spend my money on.

I have seen many of those people from your statistics Derek, it’s sad when you find out someone spent their last dollar on one of the hundreds of things associated with inventing that some self serving idiot told them they just had to have. In the end it comes down to one simple thought

Fail to prepare – and you should prepare to fail.

Mark

I am not good with math. :(

Mark,

Very interesting numbers. I was planning on suggesting a retail price of double my wholesale price to my retailers. After reading your post I am afraid that might not be enough.

My idea is a clothing item. Any thoughts on what their loaded profit expectation might be?

Hi Brad,

I don’t work with clothing buyers but my bet is they are on the high side of the scale. Maybe the 100% + but I don’t know for sure. I do work with handbags and that’s about 75% (or points as they are called in the industry)

Either way, the math is the same for all retailers.

What I can tell you is when you go to a buyer they expect that you bring with you an MSRP that reflects the market. So do your homework on comp items before you contact anyone. The comps in the marketplace will tell you what the MSRP should be, then you have to work backwards from that point to see if it can even me made and developed for the amount left after you take 75% of the MSRP.

Hope this helps – I think there is some more information about this subject on the Inventor’s mentors library – http://theinventorsmentors.forumo.biz/forum.htm

Check it out if you get a chance – great information and it’s FREE!

Mark

Wow. If my math is correct, 75 points would mean the retailer will sell at quadruple (4x) my wholesale price.

I think I need to be on the retail side of things!

We should test this theory and see if it works, or even better. Take some G8 selected products and see how well they lined up.

Yes that certainly would be interesting. Thank you Mark for the pertent information. As a newbie to the invention process I sure am glad to have generous people like you to offer helpful information.

Mary

Actually 100% would be more like 2X your wholesale. Sell it for $5.00 to the retailer and they are selling it for $15.00 is 100%

Now before everyone jumps up and down and says “It is not, it’s 200%” not in the world of a retailer. It’s called a loaded margin and you can find the math here on this thread.

Mark

Oh, and yes Mary – someoen should try it. My guess is the better you can work your idea through the process, the higher it will end up on your EN contest.

Mark, did you mean to divide by the wholesale price instead of retail price, in your equation up top?

that would give you this instead:
retail profit = (retail price – wholesale price) / wholesale price

Nope, it’s retail price (-) cost (/) retail price

$1.99 (-) $1.25 (/) $1.99 = 37185 or 37% net retail profit

VS

$1.25 (/) $1.99 = 6281 or 62% gross retail profit (but no buyer ever uses this one)

That’s the way it works.

Mark

ok, so then what you are describing is profit margin. Note that with that definition it is not possible to achieve anything greater than 100%. The MOST you could get is 100% if the wholesale cost is zero (meaning the retailer is getting their products for free).

And that’s perfectly valid, but I point it out because you said that no retailer will “even talk to you at less than 100%” which would then imply that no retailer would ever talk to anyone.

-just don’t want anyone to be confused

I see what you are saying – let me explain because it can get confusing.

Basically we are using 3 terms here

Gross Profit – The raw profit before expenses – this is simple math – Sale (-) Cost

Net Profit – The profit after a calculation for expenses. In a normal company they would take all their expenses and call it an “Overhead factor” then subtract it from the sold price and the difference is “Net Profit” However, in the world of a retail buyer, they have reduced it down to a simple equation that covers the overhead factor in what they believe is all cases. MSRP-Cost/MSRP = Net Profit

Keystone – This is an industry term for 100% or double. The part that gets confusing is that Keystone is not referring to Net Profit, but rather Gross Profit. So when a buyer is saying Keystone (100% Gross Profit) they are actually thinking 50% or Net Profit.

I should have explained that better – a large retailer will normally not even talk to you under Keystone (100% Gross Profit, 50% Net Profit or 2X the sell in price – all are “Keystone”)

Does that make sense?

Mark

Thank you for the explanation. I never heard of the keystone word before.

I am hoping that having a patented product vs. a generic would give you (as the manufacturer) some bargaining power to reduce the Loaded Profit %.

Nope, sorry – it doesn’t.

The retailer knows they are not the only game in town so they expect you are going to also sell to their competitors. The patent has more to do with your competitors than it does with theirs.

The way to get them to take a smaller margin is to bring them a product that will sell through well and let them be a hero on volume.

“We should test this theory and see if it works, or even better. Take some G8 selected products and see how well they lined up”

Ok Mary let’s do it. Start by reading the section on the Inventor’s Mentors Library about steps to inventing a retail product.

http://theinventorsmentors.forumo.biz/steps-to-...

Then take one of the ideas you submitted to En and walk it through that process. I will be happy to answer any questions you have – I bet you a donut that you will see exactly why and what stage it was rejected. Then on the next idea you submit, run it through that process before you send it in and I’ll bet you another donut that if you were honest about it when you worked it through the process you will get G8.

Anyone can do it, it’s not that difficult.