License vs. Manufacturing:
5 Critical Factors for Your Invention
Key Takeaways
- Licensing: Lower upfront costs and risks; ideal for inventors who want to focus on creation.
- Manufacturing: Higher profit margins but significant capital, operational expertise, and distribution required.
- Your choice impacts investment, ongoing costs, risk, profit, and your daily inventor lifestyle.
You’ve secured your patent—congratulations! Now comes the pivotal decision: should you license your invention or manufacture it yourself? This choice will shape your financial future, time commitment, and peace of mind. Neil Montgomery, CEO and award-winning inventor, breaks down the 5 critical factors you must consider. By the end, you’ll have a clear, actionable framework to confidently choose the right path for your invention.
Financial Investment: Upfront Costs
Licensing: Accessible Entry
- Typical upfront investment: $15,000–$70,000
- Covers prototypes, marketing materials, and outreach
- For Sale By Inventor often achieves lower costs through streamlined processes
Manufacturing: Substantial Commitment
- Expect to invest $100,000+ before selling a single unit
- Includes production runs, packaging, warehousing, and logistics
- Costs can double or triple if unforeseen issues arise
Cash Flow and Ongoing Costs
Licensing: Predictable & Lean
- Post-deal expenses are minimal (relationship management, occasional updates)
- Capital is freed up for new projects
Manufacturing: Continuous Outflow
- Ongoing costs: warehousing, shipping, customer service, inventory management
- Cash is tied up indefinitely, increasing financial risk
Risk Assessment
Licensing: Focused & Manageable
- Main risks: finding the right partner, negotiating terms
- Operational and market risks are shouldered by the licensee
Manufacturing: High & Varied
- Unsold inventory can tie up or drain capital
- Risks include production problems, cash flow challenges, and distribution barriers
- Market fluctuations and operational inefficiencies can lead to losses
Expert Insight:
“Unsold inventory is the silent killer of inventor dreams. Choose wisely between licensing and manufacturing!”
— Neil Montgomery, CEO, For Sale By Inventor
Profit Potential
Licensing: Smaller Per-Unit, Greater Total Profit
- Royalties: 3–10% on wholesale price
- No ongoing costs; established companies can sell at high volume
- Total profit often exceeds manufacturing for most inventors
Manufacturing: High Margins, High Costs
- Margins: Up to 50% per unit
- Significant ongoing expenses erode profit
- Competition can quickly reduce market share and profitability
Further Reading:
How to License Inventions for Royalties
Lifestyle: Inventor vs. Business Operator
Licensing: Stay Creative
- Focus on inventing and innovation
- Licensee handles manufacturing, marketing, and sales
- More time and mental energy for new ideas
Manufacturing: Full-Time Business
- Requires expertise in supply chain, logistics, marketing, and customer service
- Demands the equivalent of two full-time jobs
- Less time for inventing, more time managing operations
Comparative Table: Licensing vs. Manufacturing
| Factor | Licensing | Manufacturing |
|---|---|---|
| Upfront Costs | $15,000–$70,000 | $100,000+ |
| Ongoing Costs | Minimal | High (inventory, logistics, support) |
| Risk | Low (partner selection) | High (inventory, operations) |
| Profit Potential | Lower per unit, higher total | Higher per unit, lower total |
| Lifestyle Impact | Focus on inventing | Full-time business operator |
Decision Framework: Which Path for You?
Licensing is Likely for You If:
- Capital is $75,000 or less
- You want to focus on inventing
- You have multiple ideas and want flexibility
Manufacturing Might Be Right If:
- Capital is $100,000+
- You have business operations expertise
- You have a strong distribution network
- You want full control and are ready for a major time commitment
Frequently Asked Questions
What is the primary financial difference between licensing and manufacturing?
Licensing requires lower upfront investment ($15,000–$70,000), while manufacturing often demands $100,000 or more before sales begin.
How does cash flow differ between the two?
Licensing offers predictable, low ongoing costs. Manufacturing ties up cash in inventory and incurs continuous expenses.
What are the main risks of manufacturing?
Unsold inventory, production problems, cash flow challenges, and distribution barriers are key risks.
Can I earn more profit by manufacturing?
Manufacturing offers higher per-unit margins but often lower total profit due to ongoing costs and competition.
Which path lets me focus on inventing?
Licensing allows you to focus on creating, while manufacturing requires you to become a business operator.
Conclusion and Next Steps
Choosing between licensing and manufacturing is a monumental decision for any inventor. For most, especially those with limited capital or a desire to keep inventing, licensing is the safer, more profitable path. For Sale By Inventor specializes in helping inventors make this choice with confidence and success.
