24 Aug The Story behind Product Profits – Using Patents and Cost Modeling to Make the Big Bucks
By Ruy Garcia-Zamor and Teresa Sanders
You’ve arrived! Your business is growing, profits are high and your worries are low! After years of prolific invention one of your great patented product is flying off the shelves at Target, Walmart, CVS and Kohls. Bed, Bath & Beyond is actually calling you!! What was the secret of your success?
One critical decision was deciding not to use invention submission companies. We have all heard about them. They promise to take your idea, maybe file a patent application, and send a brochure of the product to their list of companies. And all you have to do is pay a few thousand dollars up front and agree to royalty payments when you happen to strike it big. But you knew they were a total scam!
So how did you turn three ideas into one successful product? It all started with hiring a great Intellectual Property Attorney and Cost Accountant. Together they helped form the nucleus of a team that understood product profitability and who were constantly looking after your best interests. This is your story.
Idea #1 – To Patent or Not to Patent; That was the Question
Idea #1 was your baby. It had been with you for years and was a sure fire winner – at least in your mind! After talking with your attorney you decided to have a patentability search and written opinion prepared. To everyone’s surprise someone else tried to patent your idea a decade ago and it was no longer possible to obtain patent protection.
Although you were disappointed you used your business savvy and forced yourself to let go of the idea. No matter how successful you may have thought the product could be, without patent protection you knew the inevitable knock-offs would drive the profit margins to nothing and put you out of business. Time to put that baby to bed!!
Idea #2 – Build a Better Titanic and Watch it Collide into an Iceberg of Costs
Idea #2 is a great idea! You obtained a favorable patentability report. The race was on – you needed patent applications, cost modeling, and product on the shelves!
The US patent system is a first to file system. That means that it is important to promptly file an application otherwise you risk a subsequent inventor owning the rights to your idea. So you quickly had your attorney prepare and file a US Patent Application.
Working with your accountant you began your cost modeling. Cost modeling includes projecting all costs associated with:
- Patents
- Product Development
- Manufacturing
- Packaging
- Trademarking/Branding
- Marketing
- Insurance
- Distribution
- Spoilage and Returns
- Operational Overhead
Shot down again! Once the costing model was completed it was quickly evident that Idea #2 was going to crash against a mountain of costs. To generate enough profit the sales price could not be supported in the marketplace. Not a total loss! Future technological advancements may bring down manufacturing cost to make the product viable. And you have a still patent pending!
Idea #3 – The Trifecta!! What happens when a Great Idea, Beautiful Cost Model, and Patentability Meet!
Everything seemed to fall in place with Idea #3! The patentability analysis indicated that protection could likely be secured against competitor knock-offs. The cost modeling showed that not only could the product be delivered to the marketplace at an attractive price with a great profit margin but it was even feasible to manufacture in the United States. You even protected your branding with federal trademark registrations.
Kudos to you! You really earned your success. By keeping your emotions in check and subjecting each great idea to rigorous legal and financial scrutiny you were able to make the best business decisions. You knew that if a product didn’t succeed on paper the odds of commercial success were low. One of the traits of successful entrepreneurs is to be passionate about their ideas and still willing to drop one of them when legal and financial conditions are not optimal.
What a journey! Once you were an inventor with ideas. Now you are a successful company with a proven team and processes for vetting and commercializing ideas. The world is your oyster!!
Ruy Garcia-Zamor and Teresa Sanders bring a collaborative team approach to your attorney and accounting needs. With years of experience they have successfully aided businesses large and small.
If you have any questions regarding business entity formation, employment and subcontractor agreements, trade secret protection, software licensing, branding, trademarks, patent planning or other intellectual property matters, please contact Garcia-Zamor Intellectual Property Law, LLC. Ruy Garcia-Zamor has been helping individuals and businesses with their intellectual property needs for over nineteen years.
If you have any questions regarding accounting, bookkeeping, and business/process consulting services please contact TBooks. Teresa Sanders has been helping individuals and business with their accounting, bookkeeping and business needs for over twenty years.
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