I’ve been on both sides of the consultant-designer / manufacturer-marketer equation. To generalize: each side oversimplifies the other and believes that their value is less or that they can get more. To negotiate their economic self interests, usually neither side comes out getting rich or a great deal. If anything, these deals tend to economically muddle the situation so more typically, someone is going to loose. (It’s usually the one who needs to collect the money from the other. If the mfgr looses, how can the designer win?)
My suggestions/comments:
- only deal with someone you trust with your money
- don’t trust large companies or well known brands just because they’re large
- typical design/development spend for consumer products is in the 2-4% of sales. without knowing specifics, i would say to expect 3% for a well developed unique and patentable design as others have indicated.
- would you figure you how to not pay something you didn’t have to? (have you ever tried talking your way out of a speeding ticket?) there are many ways to get out of royalty agreements, and you’re probably not smart enough to figure them all out. see first suggestion…
- if this is a way for a manufacturer to delay payment will they have the extra money to pay you later?
- most reasonably intelligent manufacturers cap the reward side of the equation to 1.5 times of what they think is a reasonable design fee. in this case, your upside is 50% more, for taking on a lot more risk and delayed payment.
- the manufacturer is usually taking on a lot more economic risk than you. for tooling, marketing, inventory, cannibalization, etc. what is their motivation for delaying design costs, which is a drop-in-the-bucket in their overall financial picture?
- sales people are usually rewarded with commissions on sales, so the model is not alien. However, the manufacturer needs those specific sales people to keep selling every month. Do they need you? (And hence need to keep paying you to keep you happy.) Or could they move on to the next gullible designer?
- if royalties are not paid, what is your expertise in getting paid? how do you perform an audit? how do you enforce a contract? how would you even know if you should?
- how does a manufacturer evolve his product line with derivative works that require extra design effort on his part? How do you get paid for your contribution to those projects when they become different products than the one you designed?
- i’ve seen successes and failures with this model. the failures probably outweigh the successes, and additional risk was taken to get to the successes, which i would qualify as getting paid at least something close to the consulting cost would have been.
If i were consulting, i might:
- sell an idea outright after well patented (designing around patents is quite easy for most mechanical innovations). yes, patenting is an expensive process. (many larger companies won’t consider outside designs, or will require them to be patented before being seen. this way they are legally protected when they design around your patent. this is because they won’t view confidential material, to protect themselves from dispute later.)
- take equity in a small firm i believed in
- take royalty only if i needed to do so for an unfunded client, because business was slow, not to get rich. i would recognize that i might not get ever get paid. (most probably, the designs would be used by my client to try to get funding…)
- take royalty if i was famous or was rich enough to defend myself if i needed legal representation.