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What are the advantages of this idea? Is there a real need for it?
Do I know exactly what problems my idea will solve?
Is this an original idea of an adaptation of an existing one?
What are my anticipated short-term results?
What are my anticipated long-term gains?
Are there any faults or limitations to my idea?
Could this idea create any problems?
How simple—or complex—will it be to execute this idea?
Are there variations to this idea?
Do I have alternatives?
Is this idea saleable?
Will people want it? Can they afford to pay for it?
Who is my competition, and what are their plans?
How strongly will people “want” your idea?
How novel have you proved it to be?
How direct will its path to buyers be?
How low-cost and available are the skills needed for development?
How able and willing to help are inventor support groups?
How sure are you of getting the money you need?
How much alpha and beta testing have you done with X prototypes?
How well have you protected your idea?
How well have you recorded all your steps in your journal, to document them?
How can we attract the human and financial resources needed to pursue this opportunity?
How are things going to change?
What will be the benefit of the change?
How will things be better?
How many times has this concept or idea been used?
How well did it work out?
What are the similarities between past successes and this situation?
What are the differences?
How can we establish a defensible competitive position?
What type of geometry do you need to create: 2D, basic 3D, or advanced 3D?
Do you need parametric software functionality?
What is your industry?
What level of automation do you expect?
What level of integration with other software do you expect?
Do you see your needs changing in the next two years? If so, how?

Pricing need not be a onerous task filled with many unknowns. Take some time to research the following six management questions.

How much does it cost to make my product?
What is my break-even point?
What are my profit goals?
How will I market my product?
What price range do my competitors charge?
What is the customer demand for my product or service?

How Much Does it Cost to Make my Product?

Use your cost records to calculate complete product costs. A product cost is a subtotal of all the money you spend to make, package, promote and distribute the food products, combined with the costs to operate the business. A good set of business books will make this step much easier and more complete. Once you know the complete product cost and the volume produced, you can figure how much it costs to make each unit.

Be sure you include all costs in your product cost subtotal. If you plan to use a retailer or distributor, remember a typical margin over your price is 40 per cent. For example, you have found a specialty store retailer who is interested in stocking your sage jelly. The store requires a 40 per cent margin and will price the jelly at $2.49 per jar. Can you cover your costs and make a profit at $1.49 per jar?

The formula to calculate selling price is:

Selling price = cost x factor
$1.49 x 1.667 = $2.49

Entrepreneurship Facilitator's Manual, Second Edition 1995, Module 4.4, Price the Product.

Product costs include both variable and fixed costs. Most of your expenses will fall into three categories.

Materials

Include all material and supply costs, such as raw ingredients and packaging, used to make your processed food products. Material expenses are variable costs. Each time you spend money to make a product you increase your variable costs. To identify variable costs, look to see which costs keep pace with the amount you produce. When you make twice as many samosas in your commercial kitchen, your variable costs will double.

Example: A processor of dilled carrots would include the costs for jars, carrots, seasonings, vinegar, labels and the shipping costs in the materials cost group.

Labor costs

The amount you pay the people who make your food product should be added to labor costs. Remember to include a cost for your own labor. If you are unsure how much time you spend working on production activities, keep track for one week in your daytime calendar. Labor costs for machine operators and any people who prepare the food product, package or prepare it for shipping should be included in this section. Most labor costs are variable costs since they change with the number of units made.

Overhead

Business expenses such as facility and equipment expenses, insurance, utility costs, depreciation and salaries for management are overhead costs. You could also be paid for your management activities, as well as your labor. If you can't directly trace cost to labor or materials, it likely belongs in overhead. All overhead costs are fixed costs. Fixed costs are a part of operating a business. They can't be tied to the number of units produced as they are the same whether 10 or 10,000 are produced. You have to pay your fixed costs whether or not you sell anything.

Example: Liability insurance protects your business if someone is injured while visiting your place of business or by consuming your product. This is an overhead cost.

Product cost is an important first step in setting product price. It tells you the minimum amount your product can be priced. You need to know your product price before you can calculate how many units you must sell to break-even. The break-even point is where there is neither a loss nor a profit from the sale of your products.

Once you know product cost you can use customer and competitor analysis to further refine your product price. The worksheet attached to this factsheet walks you through this process.

Refer to The Essentials of Pricing and Methods to Price your Product for background information.

Activity:

Prepare a list of all your business expenses and list them on the worksheet provided. Follow the worksheet to calculate your product cost.

What is my Break-even Point?

A good product price strikes a balance between costs, volume and profits. You can use a break-even calculation to see whether costs are covered by a certain price and volume.

Break- even analysis can also help you analyze how a price change affects your business. From the worksheet, you can find out how much of your product you have to sell to cover your product costs. If you can't sell enough to cover all of your costs, you have to adjust your selling price or reduce your expenses.

To earn a profit you must add it to the break-even point. The break-even calculation tells you where total revenue equals total cost. If you set price or volume below the break-even point you will lose money each time you sell your product. Price or volume above the break-even point will ensure profits.

To calculate the break-even point you must know your fixed costs, variable costs and unit contribution margin. We have identified fixed and variable costs in the cost section. To calculate contribution margin you subtract variable costs from the price. Use contribution margin to experiment with various prices before you settle on a final food product price.

Contribution margin is a quick way to figure how much fixed costs each unit can carry.
Unit contribution margin =
unit sales price - unit variable cost

Example: Happy Cheese Company produces a spiced Camembert cheese for $1.20 per 100 gram variable cost and sells it to a wholesaler for $2.00 per 100 gram

Unit contribution margin
$2.00 - $1.20 = $0.80

This means each Camembert cheese produced can pay $0.80 fixed costs for the company to break-even.

Break-even point in units = fixed costs
unit contribution margin

Example: Happy Cheese Company has $1,000 in fixed costs for the spiced Camembert cheese.

Break-even in units = $1,000 = 1,250
$0.80

To make no profit, but cover all the costs at $2.00 per 100 gram, Happy Cheese Company must sell 1,250, 100 gram packages of cheese.

To achieve a target profit or target operating income for the business use the following formula:

N = fixed costs + target profit
unit contribution margin

Example: Happy Cheese Company wants to generate $1,000 target profit

N =
$1,000 + $1,000
=
$2,000
= 2,500, 100 gram pks.
$0.80
$0.80

To earn $1,000 profit for the business, Happy Cheese Company needs to sell 2,500, 100 gram packages of cheese.

What are my Profit Goals?

Every business needs profit goals to set direction and to ensure the business not only survives, but thrives. To set a profit goal you must consider cash flow needs, product position and family member business goals.

Profit goals project how much profit your food processing business should earn. You can set your profit goals as a percentage above the product cost subtotal or set a total profit figure for the entire business. A profit goal guides decisions on the amount of product you make and the price you charge.

The product position of your food products should be linked to profit goals. Product position describes how target customers view your products. Do your customers at the farmers' market think your chutney is high quality, unique and worth the extra trip? If so, you can charge more for your chutney. This affects the amount of profit you can earn.

Example: Happy Cheese Company is in its second year of operation. It plans to expand its marketing strategy next year. A profit goal for 1999 is to earn $1,000 monthly.

How Will I Market my Product(s)?

Direct marketing

People who sell their products directly to the consumer are direct marketing. To ensure success in direct marketing you need to do some research. You need to research how your product compares to the competition, the demand for your food product and the unique benefits.

There are many types of direct marketing:

Farmers' markets

A farmers' market is a focal point where producer and processors gather on a regular basis to offer home-grown produce, agricultural and home-crafted products to sell directly to consumers. All Alberta approved farmers' markets operate under rules and regulations implemented by Alberta Agriculture, Food and Rural Development. Individual farmers' markets may also have additional rules and regulations. The theme is, "Make It, Bake It or Grow It."

The advantages of using farmers' markets are direct contact with a larger, regular and loyal customer base, lower marketing and overhead costs, greater income and a market to test new products. The disadvantages are extra time away from the food processing business, possible low sales volume and the costs to transport product to the farmers' market.

Trade shows or trade fairs

A trade show is an efficient way to market your food product to the hospitality and foodservice industry. It's also a great way to network with firms specializing in equipment, financing, training, quality control and promotion. ARFEX is an annual trade show alternating between Edmonton and Calgary. The trade show is sponsored by the Alberta Restaurant and Food Service Association (ARFA).

A trade fair provides feedback from industry experts and an opportunity to market products to the wholesale gift marketplace. Uniquely Prairie is a four-day show, held in Edmonton during August in conjunction with the Alberta Gift Show. Written feedback is given to all participants in Uniquely Prairie. Comments are made by experts in merchandising and marketing who rate products on design, workmanship and saleability. Products with a judge's recommendation are given space in a special creative arts display space where they receive extra information and coaching on display management.

Gift baskets and mail order sales

This type of direct marketing works best for non-perishable products such as dried fruits and vegetables, preserves, flavored vinegars, spices and candies. The main advantages of gift basket and mail order sales are they aren't location dependent, they appeal to a new customer base and they provide collaboration opportunities with other food processors to create unique product combinations.

Food service or door-to-door sales

When you take your processed food products to people's homes, retail businesses, institutions and restaurants you are in the door-to-door sales business. You can also work with a worthwhile charity to sell your food product to help raise funds. Business owners like this type of direct marketing as it has low overhead costs, easy entry and exit, and no location requirements. The disadvantages include legal restrictions, licensing requirements and image problems related to quality.

Farm gate sales

If your farm has plenty of parking space and is easy to get to, it may be ideal to encourage customers to come to the farm. To offer on-farm sales you need a cash register, weigh scale and perhaps a cooler, depending on your product. On-farm sales offer lots of flexibility on length of season, size, hours of operation and product mix.

The advantages of farm gate sales are on-site location, a broad range of products, year-round employment and additional income. The disadvantages include extra capital for buildings, finding and keeping reliable food product suppliers, and the need for a good location. Check to be sure you comply with municipal or provincial regulations regarding zoning, health, safety and primary and secondary highway road allowance right of way boundaries.

Other types of direct marketing you could use to sell food products include home parties, a web page and telephone selling.

Indirect marketing

When you use an indirect market you place one or several market channels between your food product and the customer. You may decide to use an indirect marketer for the following reasons: less time commitment, an expanded customer base and lower capital requirements. Examples of indirect market channels are wholesalers, retailers, institutional buyers and brokers.

Wholesaler

A wholesaler pays for your food product and owns the goods. Most wholesalers have invested in buildings and capital. They are able to store large volumes of food products and may even repackage goods to meet the needs of various customers. The wholesaler earns income by reselling your food products in mixed lots or smaller quantities to retailers or institutions.

Example - Happy Cheese Company is a new business and has decided to use a wholesaler so it can focus on producing high quality Camembert products.

Retailer

Some retailers buy food products directly from you and sell them to the consumer. This practice is very common among small one-store retailers or very large retailers who have invested in storage facilities and transportation. Specialty retail shops are a good example of a small retail operation as they prefer unique, locally made products. Use several types of retailers to diversify your food product portfolio and to expand your sales.

Institutional or foodservice buyers

Examples of institutions that might buy your food products are schools, hospitals, hotels, nursing homes and military bases. The larger institutions often find it more cost effective to buy directly from food processors and absorb the transportation costs, rather than purchase it from wholesalers.

Broker

A food broker provides an expert sales force, local representation and stable sales costs. Some of the tasks a broker can do for your business include: representing your product, visiting stores regularly, monitoring product sales, handling complaints, pulling product or rushing unplanned orders. Many brokers also handle any special promotions or displays you request and monitor competitor activity. Fees for brokers range from three to 10 per cent (commission). The commission fee is negotiated along with fees for special services such as the planning of promotions or data collection.

To find a broker ask five or six retailers which brokers they use and why they like them. When you interview a food broker, take along some facts such as a product description, suggested retail price, shelf life, the type of packaging used and the amount you can supply. Plan to discuss fees, major clients, experience with the product category and the five largest retailer accounts they handle. You need to know if the broker has a conflict between your product and other products they currently market.

For more information on food brokers refer to the AG-Strategies publication, Working with a Food Brokers.

International marketing options

Most business advisors recommend that you have a good domestic customer base before you consider marketing internationally. However, you may decide to develop a product exclusively for an international market. You may also know someone who has detailed knowledge of a foreign market and is prepared to help with the groundwork.

There are some good reasons to consider an international market. Provided your food product is priced properly, an expanded market should increase profits. International markets offer a larger and more diverse market base, can extend the life cycle of your food products and can give you more security through diversifying into different global economies. It's crucial for you to develop a market focus if you are considering an international market.

Marketing internationally also has major risks. You need to consider the costs of foreign currency exchanges, cultural differences and the need for additional market research. International marketing is a long-term commitment requiring up-front capital and patience.

It's a good idea to prepare a short list of countries you are interested in exporting your food product to. Before you select an international market, remember to research trade barriers, tariffs and taxes, market size, the degree of competition both domestically and from foreign operations, the distribution network and political issues.

For more information on international marketing of food products or how to connect with an international food broker contact:

Food Beverage Canada
17313-107 Avenue
Edmonton, Alberta T5S 1E5,
Phone: 1-800-493-9767 or (780) 486-9679 Fax: (780) 484-0985
Alberta Food Processors Association 220, 10403 - 172 Street Edmonton, Alberta T5S 1K9 Phone: (780) 444-2272 or 1-800-463-0864 Fax: (780) 483-7590
Ag Food Alliance
300 J.G. O'Donoghue Building
7000-113 Street
Edmonton, Alberta T6H 5T6
Phone: (780) 422-7090
Fax: (780) 422-9746

Advantages and Disadvantages of Marketing Methods

Advantages

Direct Marketing

+ lower marketing costs, larger customer base and increased income potential
+ able to earn more profit on products you sell
+ a market to test new products
+ direct contact with customer

Indirect Marketing

+ some indirect sellers are more cost effective and efficient due to economies of scale + buyers and sellers are linked together very efficiently
+ some types of indirect sellers take responsibility for marketing your product

International Marketing
+ expanded markets can increase profits
+ can increase and diversify your customer base
+ less chance of sharp sales decline if selling to many different economies

Disadvantages

Direct Marketing

+ additional time required to sell products
+ may need additional capital for buildings
+ if transporting products to customers will have extra costs
+ need to comply with legal restrictions and licensing requirements

Indirect Marketing

+ adds an extra cost to your product
+ lose contact with the customer if you sell through indirect channels only
+ You may find there are few indirect sellers interested in distributing your product

International Marketing
+ need to manage foreign currency exchange, cultural differences and additional market research
+ need patience to invest capital and wait for return on investment

What Price Range do my Competitors Charge?

When you research competitors you are taking an industry focus. An industry focus goes beyond considering your costs of production. It's comparing your business products and strategies to those of your competitors. The more you know, the better decisions you can make about products, price and strategy.

Step 1 - Prepare a main competitor list
It's important to narrow down the competitive field to main competitors, otherwise the price range may be too large and inappropriate to your business. To learn more about competitors you can conduct a secondary data search or ask customers or suppliers for their opinions.

Step 2 - Analyze the main competitors
Ask customers how they feel about the competition. Tour competitors' businesses to learn how products are priced, packaged and distributed. Find out how competitors have reacted to price changes in the past. Prepare a list of the strengths and weaknesses of your business. Compare it to your main competitors.
Step 3 - Welcome customer complaints

Make it easy for customers to tell you what needs improving. Customers will tell you how your price compares and what you can improve. Once you ask customers what you can improve, be sure you take steps to correct the problems or customers will feel they were ignored. Include your customers in market research as they are often well informed.
Step 4 - Assess if new competition will enter your market

Most industries are open to new entrants and you should expect more competition. Constantly check with customers, suppliers and your competition to see if they have heard of any new businesses. A quick scan of trade journals such as Specialty Foods, Gourmet Retailer, Prepared Foods or Canadian Grocer will help you to discover new businesses similar to your own.
Step 5 - Discover where the competition is selling You need to find out which stores purchase goods from the competition, and why. Try to find out if the competition offers other types of reductions or price cuts to buyers.

Step 6 - Observe trade show activity

If your competitor sells through trade shows, assess how their prices and sales volumes compare to yours.

Example: Happy Cheese Company identified two main competitors: Multi Cheese Company and Smoothie Camembert Cheese Company. They learned of their strengths and weaknesses through their own customer comments and in-store research. Turn to the worksheet to see how Happy Cheese Company assesses its competitors and to perform your own competitor assessment. Be sure to include a price range based on the prices charged by competitors.

What is the Customer Demand for my Product or Service?

When you review the factors that can affect the customer demand for your food product, you are taking a market focus. Demand level describes how badly the customer wants your food product and what they will pay. To assess the demand, you need to know the size and nature of your customer base and the customer's feelings about price. The more you know about your customer group, the easier it is to design product price.

To learn more about the demand for your food product(s) you will need to answer many questions, such as:

How many buyers are there and where do they live?
How old are my customers, how much do they earn and what is their education level?
What size and type of family does my customer have?
How does my customer like to spend money?
What do my customers do in their spare time?
Does my customer believe price indicates the quality of a product?
How can I be better than the competition?

Research will help you find the answers to these questions. There are two types of market research, primary data and secondary data.

Primary data provides original, tailored information about the wants and values of your customers. Target customers are asked carefully worded and sequenced sets of questions. The answers are analyzed to find out more about customer attitudes towards new products, pricing, packaging, distribution and marketing. Most business owners find they must hire a market research professional to design the primary data questionnaire and to interpret the data.

To conduct informal primary research on your food products, start by listening to your customers. Question your customers about pricing, service, quality and new food products. Invite your customers to fill out customer comment cards or brief questionnaire forms. Use this information to evaluate customer attitudes towards your food products and prices. Primary research asks target customers for their opinions and ideas. You can also tailor primary research to learn more about your competition and what target customers like most about your competition.

More elaborate primary research includes written surveys, telephone interviews, focus groups or person-to-person customer interviews. To learn more about how to do primary research you can research the subject, hire business students, talk to business owners who have done primary research or contact a Rural Development Specialist - Business or Agrifood Development Specialist from Alberta Agriculture, Food and Rural Development (AAFRD).

Secondary data uses existing materials and research. It's more general, but can often give you insight into customer characteristics and typical prices for some processed foods. To keep costs down you can conduct your own secondary data search. Most secondary research can be found in public libraries, over the internet, through publicly funded business development centres or at AAFRD offices with internet access.

All research projects should begin with a secondary data search. To learn more about target customers and their attitudes toward pricing, you can check Statistics Canada, the Business Development Bank of Canada (BDC), Dun and Bradstreet reports, trade magazines, government newsletters and the internet. There are many types of trade magazines that can provide information, intelligence and contacts in the food processing industry. Some of the trade magazines of interest to the food processing sector are: Food Processing, Bakers Journal, Canadian Food and Drug, Canadian Grocer, Canadian Hotel and Restaurant, Food in Canada, Specialty Foods, Gourmet Retailer, Prepared Foods, and Food and Drug Packaging News.

To review a brief example of a demand assessment for Happy Cheese Company see worksheet.

Understanding how to price your processed food product is an essential step in developing your business. You must continually monitor your price including your costs of production, your competition and your customer. You must also be prepared to make adjustments. In competitive businesses, the successful product is the one that can change quickly and continue to operate profitably.

Pricing Horticulture Products Worksheet - Know Your Costs and Market Assessment
Date June 98 - Example
Product Name Spiced Camembert cheese Happy Cheese Company
Product Cost
materials cost per unit(raw ingredients, packages) $0.80 per 100 gram
labor cost per unit (your own and hired) $0.40 per gram
Total variable costs per unit $1.20 per 100 gram
overhead cost (equipment and facilities, etc.) $1,000
Total fixed costs $1,000
Current selling price $2.00 per 100 gram package
Break-even Price
Current selling price - unit variable cost = unit contribution margin $2.00 - $1.20 = $0.80 per 100 gram Break-even point in units = fixed costs
unit contribution margin $1,000 = 1,250, 100 gram packages
$0.80
Profit Goals
Develop a profit goal for the business To generate $1,000 profit monthly from the business in 1998 Target Profit
N = # of units required to make a profit
N = (fixed costs + target profit) divided by unit contribution margin N = ($1,000 + $1,000) divided by $0.80 = 2,500, 100 gram packages
Marketing of Products
Direct Marketing Options

Farmers' markets
On-farm sales
Community shared agriculture
Mail-order
Foodservice or door-to-door

I plan to sell to a wholesaler for $2.00 per 100 gram package Indirect Marketing Options
Wholesaler
Retailer
Institutional buyer
Broker

International Marketing Options
Countries

Target Price Range
Direct
ndirect
International

$2.00 per gram
Competitor Pricing (industry focus)
Main Competitor A Multi Cheese Company
Strengths -broad product list. Use both direct and indirect marketing, strong speciality market image Weaknesses -higher prices, smaller volume
Price range $6.00 to $7.00 per unit (retail)
Main Competitor B Smoothie Camembert Cheese Company
Strengths -strong speciality market image
Weaknesses low volumes, narrow product range
Price range $6.00 to $6.80 per unit (retail)
Demand Level (market focus)
Nature of customer base -upscale urban consumers who shop at local shops or large deli's
-mature customer, 40 plus with secondary education who enjoys entertaining, eating away from home and experiencing food from a variety of ethnic cultures
Wants, needs and feelings of customer base -associates price with quality -nice packaging since viewed as speciality item
-convenient small size for smaller families or couples
-trend to cheese course during a gourmet meal will make speciality cheeses more common Secondary data-search findings -consumers want easy to prepare meals solutions - cheese is easy, nutritious and very tasty
-customers want variety in their food and meals. Camembert cheese adds a new flavor and texture to meals

Note: This is a small example of demand level (market focused) assessment. Refer to the questions for more details on preparing a demand assessment.

What is a registered certifying body?

Are there any registration classifications for registered certifying bodies?
Are registered certifying bodies able to have their own standards besides technical criteria for certification regarding organic and conduct certification activities based on their own standard?
Are registered certifying bodies able to provide consulting services to applicants for certification?
How do applicants receive the decisions of certification? What is "the seminar designated by the registered certifying bod
ies" in the technical criteria for certification?
For what purposes do registered certifying bodies hold seminars?
May a close relationship with a registered certifying body and certification applicants developed in seminars held by the registered certifying body cause obstacles for its neutral certification services?
How frequent do registered certifying bodies audit certified production process managers?
What is the guidance, survey, or research concerning agricultural production" of the qualifications of certification service workers?
What is "manufacturing or processing drinks and foods, or related guidance, survey or research" among the qualifications of certification workers?
Is a head of a registered certifying body able to concurrently serve as an inspector or a referee?
How are registered certifying bodies audited?
Are unannounced audits necessary for fields and factories of certified production process managers?
Shall the central government audit local governments?
What services do certified production process managers conduct?
Are production process managers able to conduct grading as well?
When farmers process organic agricultural products produced by themselves and sell them, shall they be certified as production process managers of organic processed foods as well as production process managers of organic agricultural products?
Should the same one person manage the production process? If the production process management is shared by a few persons, should all of them be certified as operators?
Should certified overseas production process managers of organic processed foods procure ingredients with the Organic _______ mark to produce and sell organic processed foods?
If organic natto (fermented soybeans) is sold with sauce and mustard, should sauce and mustard as well as natto regarded as organic processed foods?
Who should be certified as re-packers?
Is a certification necessary for re-packing foods in a supermarket?
Is a certification as production process manager or re-packer of organic processed foods necessary for polishing brown rice with the Organic _______ mark or mixing a few kinds of organic rice and attaching the Organic _______ mark to the products? Are importers or re-packers able to consign: storing imports or products to be re-packed; re-packing; and attaching grading labels to warehousers?
Are organic foods, produced in country B in accordance with the system of country A and imported via country A, able to carry the Organic _______ mark with the certification of country A? The system of country A is approved as equivalent with the Organic _______ system, while that of country B is not. What does the organic regulation provide for labeling?
How are countries whose systems are equivalent to the grading system under the Japanese(name of the country_____, _____, _______, ________) Agricultural Standards in article 15-2-2 of the LAS Law decided and made to the public?
What are specific examples of "other materials that are applied to plants and soils" as "prohibited substances"?
What are the coverages of manufacturing and processing? Does processing cover polishing rice?
Is a certification as production process manager of organic processed foods necessary for grading dried green tea or rice bran?
In which point the organic production management of fields is considered as started?
How are organic certified fields treated in the land improvement project area accompanying land readjustments?
How to deal with the case where the field falls under areas subject to aerial spray of agricultural chemicals?
How do registered certifying bodies confirm whether measures to prevent drifting of agricultural chemicals by aerial spray are taken or not?
What are exact measures to prevent prohibited substances from mixing into irrigation water?
What is the quality preservation and improvement?
Why were the lists of fertilizers and agricultural chemicals permitted in cases of imminent or serious threat to crop?
What are the criteria for permitted substances only in cases of cases of imminent or serious threat to organic agricultural products?
What exactly are processing methods applying physical and biological functions? Why are the criteria for processing aids included?
What exactly are those derived from the recombinant DNA technology?
How foods are confirmed whether they were ionizing radiated or not?
Is the use of food additives other than those listed on the Attached Table 1 permitted in non-organic agricultural, livestock, marine products and processed foods made from those?
Is the use of refined salt with bittern derived from seawater permitted as dietary salt in processing of organic processed foods?
Non-organic ingredients should be no more than 5 percent of the total ingredients. What is the calculation basis, an ingredient basis or a final product basis?
Is the use of ingredients applying the recombinant DNA technology permitted in processed foods, if they are no more than five percent of the total ingredients of organic processed foods?
Is the use of microorganisms cultured with materials applying the recombinant DNA technology permitted in manufacturing organic processed foods?
Is the use of chemosynthetic disinfectants or detergents permitted for cleansing agricultural products as ingredients of organic processed foods?
What kind of water is used as an ingredient of organic processed foods?
Is the use of disinfectants such as sodium hypochlorite permitted for making well water drinkable?
Is the use of detergents and disinfectants permitted for machines and equipments used in the processing process?
How should pests and animals be controlled in manufacturing plants and storage warehouses when organic processed foods manufactured or ingredients are kept?
Are production process managers able to include deoxidants in packing products?
What are examples of organic agricultural livestock processed foods with the same generic names with organic agricultural processed foods?
What kinds of labels are permitted for organic agricultural livestock processed foods which have the same generic names with organic agricultural processed foods?
Is the use of those derived from the recombinant DNA technology permitted as ingredients for manufacturing food additives?
Is the use of calcinated calcium, which is included in existing additives, permitted in processing organic processed foods?
Are certified re-packers or certified importers able to fill nitrogen in the tea packaging process?

Labeling

Is labeling "organic ingredients are used" permitted to agricultural products and processed foods without the Organic _______ mark?
Is labeling “organic tomatoes without agricultural chemicals" permitted?
Does labeling of "organic rice" and “organically cultivated rice" comply with the Quality Labeling Standard for brown rice and polished rice?
Shall organic agricultural products carry labeling of only names?
Shall organic processed foods carry labeling of only name and ingredients?
How organic agricultural products are monitored?
Are labeling provisions on organic foods applicable to the food-service industry or home-meal replacement industry?

How should products be labeled, if they contain organic agricultural products and agricultural products in conversion to organic?

Can you give me at least five different ways that this advice, item, or ideal can be broken?
How large is the advance?
How high is up? How long is a length of string?
Up is as high as people agree it is, and the string is as long as it is supposed to be. You and the licensee might agree that there should be an advance, but you won't initially agree on how much. If you each wrote a number on a piece of paper, there's not one chance in a thousand that both of you will have written the same sum. Knowing this, you should never ask the licensee what he's prepared to offer as an advance. That would be like owning a clothing store and asking the customer what he'd be willing to pay for the new suit he's trying on. You're the seller; it's your job to put a figure on the table. I can't tell you what that figure should be because there are too many variables, but I can tell you what it should represent.

There are two purposes for the advance. The first is to establish the seriousness of the licensee. It's what we used to call "earnest money." The advance should be large enough to convince you that the licensee is serious, yet not so large as to cause him to have second thoughts about the deal. The other reason for the advance, since it is non-refundable, is to compensate you for your time if, say, six months down the road the licensee changes his mind and decides not to produce your product. As a purely arbitrary rule of thumb, I try to calculate what a year's royalty might be and ask for an advance that represents about 25 percent of that amount. That seems to work in my own negotiations and the sum that is finally agreed upon is usually not far from that amount.

What percentage should the royalty be?

The reason these points are negotiable is that there are no hard-and-fast rules. If what you've licensed is a high-volume, low-profit type of product, you might be happy to get three percent. If it's a slow-moving but high-profit item, you might be entitled to ten percent. None of the products I've ever been involved with have strayed beyond either of these extremes, and most wind up in the five percent area. I developed a wonderful negotiating strategy that you're free to use. Let's say I ask for six percent and the licensee complains that competition will be able to undersell him because of the high royalty. I tell him that if and when competition comes along, if he's not competitive, I'll cut the royalty. I even know from experience that if and when competition does come along, it is usually based on features rather than price—and even if it is price, this clause is long forgotten as time passes and the product has evolved into something entirely different. But my suggestion sounds good when offered at the negotiating table and shows a sense of willingness to cooperate.

When Do You Get Your Royalty Payments?

My contracts always state that I'm to be paid monthly. Company salespeople get their commissions monthly, so why shouldn't I get paid the same way? Some small companies might agree, but larger ones never will. There's too much bookkeeping involved and most will insist on quarterly payments. It's a reasonable request and I always agree. The only reason I don't change my contract to read "quarterly" is to offer the licensee a small victory.

How Long Does the Licensee Have to Bring Your Product to Market?

I apply the same principle as with the royalty payment schedule. My contracts call for the licensee to have the product on the market in six months. They always balk and I always change it. Six months is usually not enough time, particularly with a seasonal product, and I'm prepared to allow as much time as seems necessary. Nine months is usually a reasonable time for the kind of products I'm involved with. The only reason my agreement still says six months is to provide further proof of my flexibility and willingness to oblige. Your invention might be more complex, involving a year or more in production, so you have to give the licensee the amount of time that's reasonable and fair, but not so much time that he has no incentive to move ahead at a brisk pace. The longer the delay, the less chance your idea will become a reality.

What Territory Are You Awarding?

My contract routinely award licensing rights to the North America, South America, Asia Pacific, Middle East, Africa which is fine for some companies but not for others. A company with worldwide operations is going to want to sell your product all over the place. That should be all right with you—why not? However, many smaller companies may sell abroad without a really strong international presence. My suggestion is to structure two separate agreements with performance guarantees built into the international one. That way, down the road, you can remove the international rights for non-performance, without interrupting their domestic activities where, hopefully, they're going great guns. If they're not doing a job for you overseas, they won't care if you take it away.

What Performance Guarantees Should You Ask For?

If you're licensing a product that is not patented, you can't ask for any guarantees. Once your product is on the market, it's fair game for any company that wants to knock it off. Since you can't re-license it elsewhere, you're stuck with the guy you gave it to in the first place. However, if your product is strongly patented, you can move it around and are entitled to ask for minimum royalty guarantees. How much should it be? Who knows? It's an arbitrary figure based on what would be a reasonable amount in sales. The licensee should be able to make an estimate based on experience in the business, and you should be able to judge his estimates based on sales of similar or competing products.

How Long Are You Entitled to Receive Royalties?

I take the position that as long as a company is selling my product, or variations thereof, I should get royalties. Fair is fair. Some companies disagree. They figure that, since they are taking all the risk and they'll be putting money into constantly changing, improving and adding to the product, at some point in time enough's enough. Actually, years ago my accountant found a loophole in the law that gave me great tax advantages by using a finite time and calling it a sale rather than a license, but that loophole has since been closed. There may be others, so if a great deal of money is potentially involved, you may want to discuss this with a tax attorney or your accountant.

Who Pays the Legal Fees to Complete Patent Work?

Let's assume your product is not patented, but that it could be, or that you have filed a Provisional Patent Application. It's not unreasonable to negotiate with the company to pay for the application for a conventional utility patent. The patent would be issued in your name and you would assign marketing rights to the company. You have a good chance of doing this with large companies who have patent attorneys on retainer and less of a chance with small companies where the legal fees are a burden—but it's worth putting on the table for discussion.

Who Pays Legal Fees in the Event of Infringement?

If you've licensed a patented product, another company might ignore the patent and simply knock it off. Or, if your product is not patented, you may have innocently infringed on an existing patent. Who pays the legal fees to defend the patent or defend against the infringement issue? Presumably, as the licensor, that's your responsibility, but I urge you to never, never sign a contract that obligates you to take legal action. It will cost you a ton of money if you lose the case and will probably also cost you a great deal of money if you win. Duck the issue entirely if you can, but if it does come up, you have to simply tell the licensee that the two of you will deal with the issue if and when it arises. You cannot and should not obligate yourself to take legal action to defend a five percent royalty. If you do, I can almost guarantee you'll regret it.

What About Remaining Inventory?

There's an old business axiom that you can never count your profits until the entire inventory is out of the warehouse. Products tend to have a natural life span; when it's over, the manufacturer is invariably stuck with merchandise he can't sell. If he has to dispose of this merchandise at a cut price, do you still get your regular royalty rate? Frankly, it would be mean-spirited of you to insist on receiving the regular percentage, and I believe it will come back to haunt you. My suggestion is to use this simple formula. If the licensee has to sell the remaining merchandise at a 25 percent discount, you should also take a 25 percent discount in the royalty percentage. If he sells at a 50 percent discount, then you should also take a 50 percent discount. And so on. There probably won't be a great deal of money involved, and the licensee will remember your fairness when the next deal comes along.

The overriding intent of a licensing agreement, aside from the obvious desire to get what's reasonably deserved, should be to have a friendly, equitable deal that makes the licensee as satisfied as you are. Listen to the other side's legitimate needs and be prepared to compromise when it's not too painful to do so. You're going to invent something else for this guy and something else again after that. Your reasonableness at this first negotiation will set the tone of your ongoing relationship; you'll be rewarded for it many times over as time goes by. Professionals like to deal with other professionals. The less you allow emotion to dictate and the more businesslike your attitude in addressing these issues, the more assured of success you'll be.

A. Are there features of the products in the patents you can include in your product?
B. Are there any additional potential applications for your product mentioned in the patents?
C. Do they contain any design or test data?
D. Do they list any reference materials (books, articles, etc.)?
E. Were any of the patents assigned to the _______ government? They often contain significant design and test information.
F. Are any companies patenting products in this area potential licensees for your product?
G. How does your product compare with the products found during the patent search (and with those found below in the market and emerging technology searches)? Why would someone purchase yours instead of theirs? Why would someone purchase theirs instead of yours? Construct a matrix to compare the products based on features. Which products have which features?
H. Does one company or a small group of firms lead the industry in patents in this area or especially in the more significant patents?
I. Does one person or a small group of individuals lead the industry in patents in this area or especially in the more significant patents?
J. Is the number of patents being granted each year in the industry increasing, decreasing, or remaining the same?
K. Are there a few very significant patents in the industry (such as drug patents)? When do these key patents expire? How might the industry change when they expire? Do licensing agreements currently allow others to make the product? What are the terms (lengths) of those agreements?

A. Patent searches are conducted for many purposes. Among them are to do the following:
1. Determine if a particular invention is unique.
2. Identify potential features for a new product.
3. Identify other possible uses for a new product.
4. Determine independent inventors or companies currently or historically obtaining patents in a particular area.
5. Find the patent(s) for a particular invention.
6. Determine the state of the art in a particular area.
7. Identify patents in a specific field for generating citation maps (a tool in determining the relative importance/value of a specific invention).
8. Study the rate of innovation in a particular area.
9. Determine the patent portfolio of a specific company.
10. Determine if an invention infringes upon the intellectual property rights of others.
11. Learn about an industry or a specific company.
12. Search for potential solutions to design or safety problems.
13. Identify potential licensees.
14. To identify additional reference materials (journal articles, books, product literature) of use to those working in this area. Patents often list printed reference materials.
15. Identify inventors working in a certain field.

Should I seek patent protection? What kind of patent protection should I seek? When should I patent my invention? How much does a patent cost? How do I license an invention? Which web site is best to use when searching patents? Does my invention infringe on someone else's patent(s)? Should I get more than one patent? Generally, you'll want to identify the licensed patents, licensed products, territory covered, and such terms as Net Sales, Improvements, etc.

Grant of License
Is the license to be exclusive or non-exclusive? May the Licensee grant sublicenses? What rights do you reserve solely to yourself? Make sure these are clearly stated.

Payments
Are there to be minimum payments per period? How much (in dollars or units)? This is especially important for exclusive licenses. What is the royalty percentage and what is it based on? This is usually Net Sales. Who will pay the patent expenses, if it's still pending, and the patent maintenance fees?

Records and Reports
What reports will the Licensee provide to verify the base that your royalty is applied to? When? This is usually quarterly. What access do you have to Licensee's records for audit purposes, and what is the procedure? How long must the Licensee retain these reports after termination?

Improvements
What happens in the event you make improvements in the invention? What happens in the event Licensee makes improvements in the invention?

Infringement
Who's responsible for enforcing (i.e., prosecuting infringers of) the patent? Keep in mind there may occur situations in which it is in the Licensee's interest to let the patent fail. What happens if Licensee's product(s), based on your patent, infringes the patents of others? You should avoid taking on this responsibility.

Patent Markings
If a patent number can be put on a product, it's good practice to require that it be done.

Other Obligations of Licensee
Will Licensee promise to produce some quantity level of product? Some dollar level of sales? To use best efforts to commercialize? To maintain some quality level? Does Licensee indemnify you for product liability? If so, make sure that's clearly stated and that it survives termination of the agreement.

Disclaimer of Agency
Statement that the parties are independent contractors, i.e., the actions of one are not binding on the other.

Insolvency of Licensee
What happens if the Licensee goes out of business? Becomes insolvent?

Notices
What notices are required? Where and to whom are they to be sent? When do they become effective?

Transfer of Interest
Can Licensee transfer its rights? You would typically prefer not.

Term
How long is the license to last? Generally it's to expiration of the patent (or the last expiring patent), except as provided under Termination.

Termination
This is an important section—it's your way out if things don't work out as expected. Include any defaults not covered elsewhere. What is the form of notices of default? How long has Licensee to correct defaults? What happens to Licensee's products in process? Orders in process?

Compliance with Law

What laws can be violated by Licensee? Import-export regulations? Anti-trust? Make sure Licensee agrees to obey and conform to such laws and regulations.