The IP Facts
Remember, it is the IP Within You that can enhance your profitability!
A Small Charge Can Lead to Significant Profits
Even a small charge can lead to higher operating margins.
Suppose for a million-dollar contract, with a 5% profit margin, a charge of $7500 (or three quarters of 1 percent of the base contract) can be levied as an appropriate IP charge.
That would effectively increase the profit margin from 5% to 5.7%, which seems small. But that represents a double-digit increase in margins -- 14%!.
A 14% increase in margins across a large number of a firm’s contracts would be significant.
There are some direct ways to find out what IP you have in Recommendations
IP Awareness Can Lead to Accelerated Opportunities
Even without an explicit charge, awareness can lead to increased revenue and enhanced profitability.
Example:
A mission computer system manufacturer working for the Navy on their nuclear submarine program became aware that one of the unique features of its system was its stealth characteristics – lack of noise, shock, and vibration. These are critical features for a computer system running on a nuclear submarine. As a result, its business with the Navy increased substantially. The stealth characteristics were the company’s intellectual property!!
When you don’t charge for your IP...
Home Renovation
Consulting Services
Home Renovation
A builder provided drawings and details about a proposed renovation. He didn’t charge for that material. The consumer utilized the material and hired another firm to do the work. He learned his lesson – from now on, a fee of $500 - $1,000 is charged for any builder drawings/sketches.
Contracting
Consulting Services
Home Renovation
An HR consultant doing work for the Department of Defense charged appropriately for the services of her staff and contractors. However, some of the knowledge and rules of thumb that allowed the work to be done more effectively were not included in her fees. She wanted some way to incorporate that intellectual property into her fees that had been missing in previous engagements.
Consulting Services
Consulting Services
Consulting Services
A large database/consulting firm received a substantial contract from the government. Part of the deliverables included a tailored dataset that incorporated the firm’s economic forecasts. The charges to the government reflected only the labor expended – not the already developed forecasts nor the proprietary platform on which the special dataset had been generated.
When you DO charge for your IP...
Restaurant
Consulting Firm
Consulting Firm
A restaurant was closing its doors as the owner was retiring. He had a special recipe for a pizza that another restaurant wanted. The retiring owner sold the recipe to the other restaurant. That special recipe had value – it was his IP and he charged for it even as he was closing the restaurant.
Consulting Firm
Consulting Firm
Consulting Firm
An economic consulting and forecasting firm had a major contract with the Department of Transportation. Much of the work for the estimated $400 thousand engagement involved labor charges; however, approximately 20 percent of the final price included charges for the utilization of forecasting models and related capabilities that reflected the firm’s capital base. Here the charge for the IP was significant and a major source of project profitability.
Other Possible Applications
Law Firms
Business Applications
Business Applications
The bread and butter of law firm revenues are its billings, and they generally live and die based on partner and associate explicit fees. Yet even here, many of these firms have developed certain “rules of thumb” that can save clients significant costs. The question that should be addressed is whether at least a portion of those client-cost-saving mechanisms can be incorporated either explicitly or indirectly into the firm’s fee structure.
Business Applications
Business Applications
Business Applications
A firm has developed a statistical equation that it utilized to predict the sale of a particular commodity. Whether that equation is explicitly used or provides results that are then generated in a new predictive algorithm, charges can and should be levied over and above any labor fees.
Food Service
Management Consulting
Management Consulting
A catering firm has a growing business with ever-increasing clientele. It typically charges for the labor (food preparation), cost of food, transportation, etc. However, it has also developed some unique recipes that are improving its reputation and presence in the market. It can and should create a charge, if only a very nominal charge, for this intellectual property.
Management Consulting
Management Consulting
Management Consulting
A large management consulting firm has an extensive portfolio of government and private sector clients. Its mainstay are its labor fees and additional charges for subcontractors and out-of-pocket costs. However, after several years of consulting practice, it probably has developed techniques and “know-how” that allows an efficient delivery of its services. This firm, still relying on its mainstay labor charges, might conduct an “IP audit” to see what techniques and special algorithms that are unique in the market. It may or may not decide to charge for its IP, but it should be aware that it has developed such capabilities.
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