There are different kinds of licenses. Essentially, and especially for the purposes of inventors like yourself, licensing is the renting of an idea. When you license your idea out, you give a company with established resources the privilege of bringing your intellectual property to market in exchange for compensation to you in the form of royalties. You’re temporarily yielding to the company the rights to sell, market, and manufacture your idea for a given time and in a certain territory, usually in exchange for a percentage of the price. The terms under which you extend this privilege differ, because no two licensing agreements are the same. Royalty rates are negotiable, but generally fall between three (3) and ten (10) percent, and they are paid out per unit sold each quarter. If you consider the great volumes that large companies are capable of supplying, the royalties can add up fast.
Essentially, when you choose to license and idea, you tap into the boundless finances and massive infrastructure that large companies have. You get them to manufacture, sell, market, and –best of all–distribute your innovation. In other words, if they supply 20,000 stores, then your product can be in 20,000 stores! More and more inventors are looking at licensing as the best way to commercialize their product ideas, while minimizing the financial risk and the amount of work it takes.