Someone wants to buy a formula.

i do some small scale formulating for a handful clients. i always keep the IP.  one of them has had some sucsess with thier product and wants to scale up. i dont have the capabilities so they want to buy the formula. i have no idea what to charge them. they paid $2500 for the formulation and then for each production. im happy to sell it to them but i dont know whats a good price. any advice please. 

Comments

  • Good question. We operate a GMP certified production facility and most of our business is formulating and producing OEM / Private Label. To-date we keep the IP, but I am not prepared for the day someone wants to purchase a formulation. It seems to be a grey area. Looking forward to some responses.
    Dr. Mike Thair
    Cofounder & Chief Formulator
    Indochine Natural
  • me too! im small beans so im happy to let them go scale up. but i have to charge something. was thinking $3500?
  • PhilGeisPhilGeis Member, Professional formulator
    edited April 3
    ask for a piece of the action -  little upfront and % of sales
  • PattsiPattsi Member
    The least I have paid for IP is 10,000.
    Ask for more 5,000 - 7,500.
  • MarkBroussardMarkBroussard Member, Professional Chemist
    @Rockstargirl

    Since they seem to be having some success with sales of the product, you may benefit more in the long-term from a royalty transaction.

    You might charge say $2,500 as an upfront fee + a royalty of 5% on revenue from sales of the product, paid quarterly and subject to an audit of the company's sale so you can verify the royalty amount.
    Chemist/Microbiologist formulating in the Organic & Naturals arena under ECOCert/Natural Products Assn/Whole Foods/National Organic Program guidelines focused skincare & haircare products. 

    See website for details www.desertinbloomcosmeticslab.com
  • AbdullahAbdullah Member
    Pattsi said:
    The least I have paid for IP is 10,000.
    Ask for more 5,000 - 7,500.
    What does ip mean?
  • all interesting! i guess i cant undervalue myself. thank for all the comments. 
  • IP is intelectual property. i made the formula so i own it and let them use it. 
  • chemicalmattchemicalmatt Member, Professional Chemist
    @Rockstargirl ;I'd be wary on factoring post-marketing royalty income. That gets real sticky for the brand and the accountants. They determine when profitability is reached, not you, and are unlikely to yield when making recurring payments. Unless you really have a novel product there that cannot be duplicated by one of us jamokes here in this forum, I'd get money upfront, and, yes, you are under-valuing your work. US$15,000 - $25,000 will be a better price, and you can work it out to be paid incrementally in quarterly payments to keep things nice for everyone.
  • DavidDavid Member
    edited April 7
    A formulation is not worth more than it sells. There are beautiful formulations available online for free and quite lousy secrect ones no one can buy for money. The 5% that @MarkBroussard mentioned is a quite normal fee. You have to estimate the value of your formulation yourself by "sniffing" the value of your clients sales. Anything between €500 and €25000 could be appropriate

  • MicroformulationMicroformulation Member, Professional Chemist
    I fall into a different school of thought. We transfer ownership of the Formula (IP) to the client as part of our fee. Honestly royalties rarely are profitable, our Formulas are designed to meet their Marketing benchmarks, any Formula can be knocked off, and lastly the product will succeed solely on their marketing.
    markfuller@microformulation.com Microformulation.com Microformulation Cosmetic Consulting provides Custom Formulations for both large Commercial accounts as well as smaller entrepreneurs. We can provide Naturally compliant Formulations under the NSF, NPA, Whole Foods and USDA Organic Certifications. BS.Pharm Albany College of Pharmacy, Union University.
  • MarkBroussardMarkBroussard Member, Professional Chemist
    Agreed ... why would you pay $25,000 to buy a formula when you could knock it off for $2,500 to $5,000.  It won't be exactly the same, but certainly a good chemist could engineer a knock-off would be close enough to the original that the current clients would not be able to tell the difference.  The value to the marketer is all determined by the amount of money they're making off of the current product. 

    If they paid $2,500 originally to have the formula developed I don't see any great incentive to pay more than 4X to buy the formula outright.
    Chemist/Microbiologist formulating in the Organic & Naturals arena under ECOCert/Natural Products Assn/Whole Foods/National Organic Program guidelines focused skincare & haircare products. 

    See website for details www.desertinbloomcosmeticslab.com
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