You may have a better shot of licensing to earn royalties when you have some sort of intellectual property (IP) protection to license your product, even if it’s only a provisional application.  If you don’t have IP protection, the licensee doesn’t need you; they can make the product themselves, and won’t have to pay you a royalty.  

For that reason, it’s very important to do a professional patent search when you’re thinking of licensing.  A professional patent search will let you know if your idea is something you should pursue, and make sure you are not infringing on someone else’s patent.  This will help you make a decision on whether or not your product has potential for a licensing deal.

While it’s not impossible to license your product without IP protection, it is difficult, and for these types of deals, you’ll need strong relationships.  I have done several deals, both of my own and with my clients, where I’ve licensed products without any IP protection, but generally speaking, your product should be protected.

With licensing, the risk is less and the revenue can be less than if you’re doing it on your own, but when you find the right partner, licensing can be very rewarding.  You want to find a partner that has manufacturing set up, either in their own factory, or through outsourcing.  You also want a licensee that has strong distribution with their own in-house sales team, or a team of outside sales reps.  Ultimately, you want to partner with a licensee that can do good volume which equals very nice royalty checks!  For some, it could be residual income, and for others, it can make you a very good living.

When you manufacture, the reward can be greater, but so is the risk.  Before inventors consider manufacturing their products, they should ask themselves this: am I ready to go all in?  Am I ready to handle manufacturing, working with a factory, distribution, warehousing, accounting (accounts payable and accounts receivable), returns, and customer issues?  Manufacturing takes a lot of time and effort, to say the least.

You can start with a short production run of your product and test the market and should it start to sell well.  You’ll most likely receive lower production costs, which in turn can help you with making a higher margin on your product, relative to the distribution you put in place.  Depending on what type of distribution you choose can also affect the margins, but ultimately you are in business for yourself and you call the shots.

Whether you’re licensing or manufacturing, when you come up with an idea, you’re going into business, and you need to do your due diligence.  As an inventor, making sure you do your due diligence is important to the success of your invention idea.  I strongly emphasize the importance of having a professional help you through these steps, especially in the beginning, to decide if you should spend the time, money, energy and resources on your idea or just get a good lesson to move on to your next idea.  It’s good to get an opinion from someone like myself and who can also provide you the right direction to take and next steps.

Source: https://inventorsmart.com/take-invention-idea-product-quick-chat-invention-expert-brian-fried/