A large furniture manufacturing is producing my piece…ok that is not the dilemma. The dilemma is that this manufacturer has tons of experience in producing in high volumes…a couple hundered thousand units a year for one piece! So they have standards for royalties for these types of quantities…1-3%. My piece is a more high-end boutique piece and I will be lucky to get a couple hundred out the door a year…which is fine:)
So I am curious if anyone might have any info on what type of royalty percentage I shold be looking at?
It’s really about what you can negotiate.
I have seen things in the 1.5-15% range.
If volumes are low, consider the retail price and figure out how much per unit sold you want to make. If it is boutique it is probably a high cost per piece right? The lower the volume, the higher the percentage per unit?
Or maybe take a fixed dollar amount per unit sold. Say $50 each unit sold or something. I’m not an expert, just thinking out loud.
You are unlikely to get paid more than they make. A typical large volume furniture manufacture will be making somewhere between 20-30% gross margin (the difference between cost and selling price). Their other costs (sales, general, and admin) costs will be between 20-25%. Net profit is likely between 5-8%. If a design replaces or is comparable to an existing product, it’s nearly impossible to get a royalty of more than 1-3%. If your design commands a premium on the market of 5% more, then it’s feasible to ask for some of that. If your product is a low volume, high cost product, then it’s possible that they are selling at a very high premium as compared to their other products in which case the royalty could be 10%+. Realize the fact that if they are selling high cost/low volume, then their cost of sales efforts are much higher as well. If their margin is 50% and they are selling into specialty retailers (who also have a margin of 50%) then a $10 royalty is costing the consumer $40. That should give you some gauge as to what to expect.
don’t know how much product you have on the market, but if this manufacturer is selling that kind of volume, I suspect they will tell you what you will be getting. If you know other designers that do work for them or a similar company I would ask them. Be aware of sunset clauses. Try to get a licensing royalty agreement as well to compensate you if they license your product abroad.