The 4-Hour Workweek, Expanded and Update - Timothy Ferriss [66]
To purchase at wholesale, use these steps.
Contact the manufacturer and request a “wholesale pricelist” (generally 40% off retail) and terms.
If a business tax ID number is needed, print out the proper forms from your state’s Secretary of State website and file for an LLC (which I prefer) or similar protective business structure for $100–200.
Do NOT purchase product until you have completed Step 3 in the next chapter. It is enough at this point to confirm the profit margin and have product photos and sales literature.
That’s reselling. Not much more to it.
Option Two: License a Product
I not only use all the brains that I have, but all that I can borrow.
—WOODROW WILSON
Some of the world’s best-known brands and products have been borrowed from someone or somewhere else.
The basis for the energy drink Red Bull came from a tonic in Thailand, and the Smurfs were brought from Belgium. Pokémon came from the land of Honda. The band KISS made millions in record and concert sales, but the real profit has been in licensing—granting others the right to produce hundreds of products with their name and image in exchange for a percentage of sales.
There are two parties involved in a licensing deal, and a member of the New Rich could be either. First, there is the inventor of the product,30 called the “licensor,” who can sell others the right to manufacture, use, or sell his or her product, usually for 3–10% of the wholesale price (usually around 40% off retail) for each unit sold. Invent, let someone else do the rest, and cash checks. Not a bad model.
The other side of the equation is the person interested in manufacturing and selling the inventor’s product for 90–97% of the profit: the licensee. This is, for me and most NR, more interesting.
Licensing is, however, dealmaking-intensive on both sides and a science unto itself. Creative contract negotiation is essential and most readers will run into problems if it’s their first product. For real-world case studies on both sides, ranging from Teddy Ruxpin to Tae-Bo, and full agreements with actual dollar amounts, visit www.fourhourblog.com. From how to sell inventions without prototypes or patents to how to secure rights to products as a no-name beginner, it’s all there. The economics are fascinating and the profits can be astounding.
In the meantime, we will focus on the least complicated and most profitable option open to the most people: product creation.
Option Three: Create a Product
Creation is a better means of self-expression than possession; it is through creating, not possessing, that life is revealed.
—VIDA D. SCUDDER, The Life of the Spirit in the Modern English Poets
Creating a product is not complicated. “Create” sounds more involved than it actually is. If the idea is a hard product—an invention—it is possible to hire mechanical engineers or industrial designers on www.elance.com to develop a prototype based on your description of its function and appearance, which is then taken to a contract manufacturer. If you find a generic or stock product made by a contract manufacturer that can be re-purposed or positioned for a special market, it’s even easier: Have them manufacture it, stick a custom label on it for you, and presto—new product. This latter example is often referred to as “private labeling.” Have you ever seen a massage therapist’s office with its own line of vitamin products or the Kirkland brand at Costco? Private labeling in action.
It is true that we’ll be testing market response without manufacturing, but if the test is successful, manufacturing is the next step. This means we need to keep in mind setup costs, per-unit costs, and order minimums. Innovative gadgets and devices are great but often require