Someone wants to buy a formula.

Rockstargirl

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. 

mikethair

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.

Rockstargirl

me too! im small beans so im happy to let them go scale up. but i have to charge something. was thinking $3500?

PhilGeis

ask for a piece of the action -  little upfront and % of sales

Pattsi

The least I have paid for IP is 10,000.
Ask for more 5,000 - 7,500.

MarkBroussard

@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.

Abdullah

Pattsi said:

The least I have paid for IP is 10,000.
Ask for more 5,000 - 7,500.

What does ip mean?

Rockstargirl

all interesting! i guess i cant undervalue myself. thank for all the comments. 

Rockstargirl

IP is intelectual property. i made the formula so i own it and let them use it. 

Abdullah

Thanks @Rockstargirl

chemicalmatt

@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.

David

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

Microformulation

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.

MarkBroussard

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.