Bringing Your Product to Market - Selling on the Internet (Part I)
Wade Sun, inventor of the Disc Eraser™, a top 30 finalist on the American Inventor TV show and a relatively new father (congradulations Wade), has written an article for us sharing the wealth of knowledge he's accumulated while bringing his product to market.
Here's part 1 of a 3 part series on Bringing Your Product to Market - Selling on the Internet.
Part 1: Manufacturing and Production
First of all, bringing your own invention/product to market isn't for everyone. Most inventors choose to license out their patents and inventions rather than venturing their product through manufacturing, packaging, and then marketing.
Which Should You Choose?
There are trade-offs and benefits of both approaches; for licensing, there is less financial risk, but you limit your own participation and profits tremendously. However, it is difficult to get companies interested in your product. They are likely to stall on your project because they are busy with their own products. If you have new technology, there is always the Intellectual Property risk when you work with other companies, despite signing confidential agreements.
Some inventors have no choice but to license out because their inventions require an expensive manufacturing setup. Obviously for self-venturing, more time is required as well as more funds. The knowledge of sales and marketing is essential, and experience is key in this area. Therefore, most inventors find themselves out of place when it comes to introducing their product to market. They may have the passion and the expertise in their field, but need help with sales and marketing. It is helpful to team up with experts in these fields. I personally have found self-venturing to be a faster and more personally rewarding way of bringing my product to market. It can be expensive, but I've learned to minimize my startup cost and sell my product online at www.DiscEraser.com, which I will share in this series of articles.
As the inventor, you must be realistic and ask yourself if your venture is going to be worth the time and money that you put into it. Many inventors live in a dream world with no idea of how to market their products. 97% of all patents fail to make any money. Maybe you think your product is so good, marketing will be very easy because it will sell itself.
Wake up! You need to focus on the concrete factors...What is the market size of your product? Who is your target market? How will you position your product? What is your manufacturing and advertising budget? How will you reach your target market? What business entity will you establish? How will you ship out your products? Which professionals will you need to consult or hire to help you? There are many other important questions and pitfalls to avoid, most of which are unforeseen and can only be learned through personal experience, or the counsel of those who have it.
Manufacturing Your Invention:
Manufacturing requires up-front costs such as molds and tooling. Because my Compact Disc Eraser design is simple, small, and has low material cost, it is feasible to self-venture. You must evaluate the complexity of your invention, whether you will be able to afford the manufacturing for it. I first obtained quotes here in the US, but the iron molds were too expensive. Therefore I decided to outsource manufacturing overseas.
It is difficult to negotiate a minimum quantity run because manufacturers are set up for high volume production, but you should limit yourself to a few hundred units at first. You will need to give them your prototype, or some CAD drawings. It will take many revisions before your product is ready, so don't place a high volume order; you will most likely get stuck with defective inventory. Pay more per piece, but keep production volume low. You will come across manufacturing issues to solve and improve your product with each revision.
The manufacturer may make some suggestions in design, which you may or may not agree upon. Have engineers verify the changes. Price is most often a negotiating point, so try keeping everything simple at first. If you have different versions of a product, make the simplest one first. Also, don't worry about producing different colors, sizes, etc...this should be done at a later stage when functionality and quality is achieved. If a manufacturer gives you a few samples at first, don't expect the first production run to produce the same high-quality product as those samples, because with higher volume, quality usually decreases. You must get them to run at least a few hundred units in order to see that they are capable of high volume quality.
Packaging Your Invention:
Package design is very important! You will need to find a graphics designer who is experienced in product package design. Depending on your product size and composition, you can choose from a variety of packages such as blister packs and clamshells. Small boxes are the cheapest way to go, and there are manufacturers who can make custom size boxes for your product. Unlike blister packs and clamshells, you can package the product yourself without the need for a blister sealing machine. The graphics on your package must grab the attention of your buyer within 3 seconds...in essence, the packaging must enhance and sell your product. Focus on the benefits of your product, the top 2 or 3 key benefits. Study the packaging of your competitors and similar products, the coloring and layouts. There are many formalities of product packaging such as obtaining a UPC code, etc...also, you need to get the best quality packaging, which can be difficult to obtain overseas. Therefore, I have chosen to product package here in the US. It's very expensive, but it's well worth it. Fortunately, there are many packaging companies here, so be sure to shop around and find the best deal. Like the manufacturers, the packagers will require a minimum quantity production run, so be sure to find one that is low volume. You will likely have to update and revise your packaging, so try not to order more than a couple thousand units.
Seek Expert Advice:
Besides reading many books, attending meetings and seminars, and searching the internet for knowledge, I have had some expert help from industry professionals. Obviously, if I had only relied on myself or my circle of friends and family, I would not be where I am today. You must look for the advice of experts, i.e. those who have successfully done it before. SCORE is a good online organization to find some key people to help you in various fields.
Selling Your Product Yourself:
There are many misconceptions and struggles that many people don't know about when it comes to selling your product yourself. Your end goal may be to sell at a wholesale volume to retail chain stores, but it usually takes many months to years of hard work before this happens. I found myself quite frustrated, because people would just simply tell me, "Get Wal-Mart to carry your Disc Eraser," or "Get it on a T.V. infomercial." Getting into retail stores requires a long list of checkpoints and preparations; it simply doesn't happen overnight. How are you going to manufacture your product? How will you deal with Quality Control? Inventory? Product liability insurance? Advertising and sales? Fulfillment? And the list goes on....what price will you sell your product? Which price is the most profitable?
To prepare yourself, you need to test market your product - try selling the product yourself. Why? Because of less risk, and higher profit margins. You can handle low volumes and keep a higher percentage of the profits. Once you transition into wholesaling, there are a lot of middlemen, and the stores want to buy large volumes of product at a big discount. Especially Wal-Mart (your per piece profits will be very minimal, and you will take the risk and responsibility of producing high volumes and inventory control). What if your product didn't sell well in the stores? The retailer may not pay you anything at all...and you'd lose your production investment, anywhere from tens to hundreds of thousands of dollars!
I would rather start out focused on smaller volume and higher profit margins, then work my way down from there. I am not going to first attempt a big-time retailer until I have built up a good sales record. And yes, Wal-Mart is last on my retail list. You'll need to manage your cost per piece and figure out the bottom line cost during these various stages. Generally, you should set your price at least 5x the cost to produce it, preferably 10x or more. You want to start testing at the highest price, then go lower if necessary.
One common mistake that new businesses make is that they underprice their product or services in hopes of getting more sales, especially in the beginning...this is a no-no, because the main problem is reaching your target audience, or finding the right positioning or marketing angle for your product. It is important to do competitive analysis as well as price to value perception, and of course, actual price point testing. Don't ever cut your profits thin unless you know for sure that high price is the main reason why people are not buying. One quick test is to offer a discount sale for a limited time, and see if the number of sales increase as a direct result of the price reduction.