Re: Royalties on manufacturing

Postby nxakt » February 7th, 2012, 11:20 pm

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stay youth wrote: Honestly I feel as a designer as Scott was saying I charge 3k for a product that makes a company 400k, my hourly rate doesnt accurately reflect the outcome.


Tricky how to look at this. Companies make money. Companies just as easily lose money, and the majority of products introduced into the market fail to make money. The investors and owners of the company get to keep the profits, and they have to put in the money when things go the other way.

Just because you worked on a project does not mean you deserve part of the outcome. Conversely, if your work was not appreciated by the consumer, you do not have to refund your design fee. If you charge 3K and the company loses 400K, then also the rate does not reflect the outcome.

If your talents are unique enough, and your sales skills persuasive enough, and your comfort level in the partner high enough, you can choose negotiate to share the risk and the reward. You can also choose to be paid for your contribution in whole up front and let the company keep the risks and rewards. You have to accept the outcome that you negotiated from the beginning. Be comfortable with someone else making money from the success of your designs, it is building your value as well.

Charge too much and they go to someone else, pure and simple. Ask for a royalty when an equally competitive designer is not asking for it, and the will choose him. Most companies will not pay a royalty, too complicated, they want the costs in up front, and design and industrialization are one of the costs.

Re: Royalties on manufacturing

Postby Scott Bennett » February 8th, 2012, 8:41 am

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I can certainly see Taylor's point, and I think it comes down to what kind of work you do, and for whom. If you have a "retail" design consultancy, with people coming in off the street (inventors, startups, etc.), then you'd have to be pretty crazy to roll the dice and take a royalty on all of them. I have a much different situation in that I only do stuff for a couple companies. It's very rare for me to hourly bill anything.

Re: Royalties on manufacturing

Postby mo-i » February 8th, 2012, 9:08 am

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If you work on royalties only you should have a stronger hand in the whole
process in order to make sure it doesn't go wrong at some point in sales or marketing.

If you do classical design consulting delivering a model or CAD at their doorstep and
that is the whole gig, the work should be paid on a hourly basis. If you are willing to risk
part of that compensation for royalties it is up to your liking and negotiation with the
client.

Delivering designs for speculative projects on a royalties only basis shouldn't be.

mo-i
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Re: Royalties on manufacturing

Postby TaylorWelden » February 8th, 2012, 4:46 pm

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I'd like to clarify that I'm an optimist, and I want us all here to make bunches of money (morally and legally), while protecting and increasing the value of our profession.

It is my strong personal opinion, developed through my professional experience and the experience of many other professional Industrial Designers, that royalties situations generally a terrible waste of your time and your effort which you should be getting paid for.

There are examples when royalties deals might be a great thing, but that is a very small percentage, when opportunity meets talent and a great team of lawyers.

You should start getting royalties when you become a VP of Design at a company you believe in and work hard towards the success of. And then they're not royalties, they're shares.
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Re: Royalties on manufacturing

Postby stay youth » February 9th, 2012, 12:12 am


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Taylor again I really appreciate the frankness, it would seem that hourly is always the safest bet.

Re: Royalties on manufacturing

Postby Cyberdemon » February 9th, 2012, 9:42 am

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I agree with a lot of Taylors concerns and honesty.

If you are a position of power and trust, then roytalties can make a lot of sense. But all of his concerns are equally valid, and the amount of legal work needed to set it up and potentially enforce it may wind up back firing. As he mentioned, you have no legal right to access the books of most companies (some public companies may disclose individual product sales but it is typically rare) to see how many units they sold.

At that point it becomes a their word vs your word situation which puts you in a bad spot. "I think you sold a million of these" "No we sold 15" "OK well looks like I'll see you in court!"

If it was a situation where you were working with a client where you had a long established and very trusted relationship with, I would feel differently about it. So you would really have to evaluate it yourself.

I just got burned by a client for a small sum of money, but even with all of the agreements setup the amount of time and pain in the ass it would take for me to pull him into small claims court, deal with all the headache and then actually deal with getting payment isn't worth the amount of money that was lost. So now I'm starting to become the "trust no one" guy.

Re: Royalties on manufacturing

Postby engio » February 9th, 2012, 10:19 am


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http://www.fastcodesign.com/1665894/cou ... he-c-suite

Lots of hyperbole, but might be worth a read. Read comments as well..

Re: Royalties on manufacturing

Postby Cyberdemon » February 9th, 2012, 10:54 am

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I think the article still supports most of the points being made.

1 - Not all of Fuseproject income comes from their royalties/ventures, which gives them some level of potentially more predictable cash flow.
2 - Starting OFF with a royalty based model without the "Street cred" and cash flow is still a very big problem. Most of us young guys don't have the opportunity to wait 2 years for a product to reach production and start selling before we can realize any kind of profit.
3 - There needs to be a close level of trust at the highest level of the partnership, which makes startups ideal for that type of business model, but not necessarily some of the smaller fly-by-night inventor types or large corporations.
4 - You as a designer need to have a vested interest in the success. I've gotten some requests for some very weird products where even with my best suggestions wouldn't have necessarily made for a successful product, but the person was very committed to their idea and still wanted to see it realized. Sadly while these projects aren't the ones I'd want to take, you always need something to kick in cash.

I think the difference you'd see between the traditional hourly model vs the royalty model is kind of a linear growth (there are a fixed # of hours in a year, so to increase profits you need to either increase your rate, or your headcount), whereas royalty growth would start off slow but ramp up exponentially if you were able to pull off what Behar did.

Re: Royalties on manufacturing

Postby rkuchinsky » February 9th, 2012, 11:43 am

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Don't forget, design is only a small part of a success or failure. I typically do it all from strategy to branding, design, marketing, development, etc. and even
Then in most cases I wouldn't do royalty as I can't control the things I can't control.

If its that great of an idea and such minimal risk you should have the idea yourself and get investors and make 100%.


Bird in the hand.

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Though a whole different story on retainers. That's where we should be looking...
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Re: Royalties on manufacturing

Postby Scott Bennett » February 9th, 2012, 8:20 pm

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Thought this was funny, from a recent interview with Jerry Manock, who was responsible for early Apple's ID:

Walking back from lunch one day, I said, Steve, you paid me $1800 for the Apple II, and it’s getting to be more and more popular, and I really think I ought to have a royalty on that. I ought to get, like, a dollar a unit, because $1800 wasn’t all that much. He never hesitated. He looked at me and said, “You’re very good. But if you knew how many we thought we were going to sell in the next two or three years … You’re not that good.” What do you say to that? He was absolutely right. How many millions of those things did they sell? You can’t ask for royalties after you’ve delivered the work, so it was totally stupid and naïve on my part. And he was a really incredible negotiator.


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Re: Royalties on manufacturing

Postby nxakt » February 9th, 2012, 9:48 pm

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engio wrote:http://www.fastcodesign.com/1665894/could-a-change-in-business-model-win-designers-a-place-in-the-c-suite

Lots of hyperbole, but might be worth a read. Read comments as well..

That is a great discussion at Fast Company. Nice to see so many of the comments reflecting the royalty model, and making clear the risks as well.

Here's how I think of it, using Sony as a generic example.

If Sony used the creative talents of an independent singer, used its team or producers, manufacturing plants, distribution network and sold millions of copies of the produced work to the public, the singer would receive royalty checks for the rest of his life. An then his estate after that.

If Sony used the creative talents of an independent designer, used its team or producers, manufacturing plants, distribution network and sold millions of copies of the produced work to the public. The designer would receive a check for the hours worked or project and nothing more.

Record companies used to pay the artists 35$ per song, and they were happy. No royalties. Until the artists realized they were living in the industrial mass production age.

Cyberdemon wrote:You as a designer need to have a vested interest in the success. I've gotten some requests for some very weird products where even with my best suggestions wouldn't have necessarily made for a successful product, but the person was very committed to their idea and still wanted to see it realized. Sadly while these projects aren't the ones I'd want to take, you always need something to kick in cash.


The filter of potential success (as estimated by me) or weird/useless is a good one. I don't want to work on projects that are just going to wind up in a void somewhere. A potentially successful project is advancement for my work, whether I get royalties or not.

It is different when people come to you and ask you to work for free on their great idea, Taylor is right, that is a clear warning sign. The change comes when you are recognizing great opportunities and looking to invest in the success and share the rewards through design. Jerry Manock should have realized that before the success of the machine, but in the same article Scott linked to above, he felt this way about things.
Manock, dubious about Jobs’ appearance, asked for the money up front. Jobs refused, but Manock took the job anyway. Within weeks, he had produced a simple foam-modeled plastic case that was uncluttered and exuded friendliness. Jobs was thrilled.

From the same article:
So I said, “Look, this is crazy. I’ll join you, but I only want to work half time. Twenty hours a week. Well, I wound up working, like, 50 hours a week, for half pay. I did that for about six months. I thought, This is totally stupid. When I signed the papers as a full-time employee, I was No. 246. I always tell people I could have been No. 6, which was worth, like, $85 million when they went public. But instead, I wanted my $20-an-hour consulting fee.


"..could have been..". No more painful words can I imagine.

Reading a little deeper in the same article. His original contract mentions percentage of each unit as a possible. I guess he got out negotiated by Stevie.
manock-jobs.jpg

Re: Royalties on manufacturing

Postby Cyberdemon » February 10th, 2012, 9:35 am

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nxakt wrote:
Cyberdemon wrote:You as a designer need to have a vested interest in the success. I've gotten some requests for some very weird products where even with my best suggestions wouldn't have necessarily made for a successful product, but the person was very committed to their idea and still wanted to see it realized. Sadly while these projects aren't the ones I'd want to take, you always need something to kick in cash.


The filter of potential success (as estimated by me) or weird/useless is a good one. I don't want to work on projects that are just going to wind up in a void somewhere. A potentially successful project is advancement for my work, whether I get royalties or not.


I completely agree at a moral level, though since freelance is really more of a weekend gig for me, when someone comes to me and says "Hey could you build a 3D model of this widget I made in my kitchen out of styrofoam?" even if I come in with solutions for improvement, sometimes they just want the service performed and that's when the hourly rate kicks in.

Re: Royalties on manufacturing

Postby rkuchinsky » February 10th, 2012, 9:44 am

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Cyberdemon wrote:
nxakt wrote:
Cyberdemon wrote:You as a designer need to have a vested interest in the success. I've gotten some requests for some very weird products where even with my best suggestions wouldn't have necessarily made for a successful product, but the person was very committed to their idea and still wanted to see it realized. Sadly while these projects aren't the ones I'd want to take, you always need something to kick in cash.


The filter of potential success (as estimated by me) or weird/useless is a good one. I don't want to work on projects that are just going to wind up in a void somewhere. A potentially successful project is advancement for my work, whether I get royalties or not.


I completely agree at a moral level, though since freelance is really more of a weekend gig for me, when someone comes to me and says "Hey could you build a 3D model of this widget I made in my kitchen out of styrofoam?" even if I come in with solutions for improvement, sometimes they just want the service performed and that's when the hourly rate kicks in.


Don't sell your soul for a quick buck. Fun, fame and fortune only come from keeping a keen eye on your principles and values. It's easy to get sucked in by easy money but I guarantee when you look back you will find you'd rather be doing anything else than this.

You can work to live or live to work. I'd rather be doing the later.

R
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Re: Royalties on manufacturing

Postby pier » February 10th, 2012, 12:21 pm


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Years ago, during mutual introductions while working together on a project with a large design agency in New York, they related story of only taking royalty on one project, from Sony, and the CEO said they'd never do it again. A colleague here designed several furniture items for a manufacturer, only one resulted in royalty payments, but 5 years after he completed all work, although he did admit it became quite lucrative.

On one of my projects with a very large technology company, during a design review the CEO went on a tirade regarding licence and royalty fees that would be required for certain pieces of technology. Asked later if he would desire his company free of a belligerent union or licence and royalty fees, he chose the latter.

I've heard this numerous times from executives of all levels at numerous companies: the ongoing commitment of royalties and licence fees are anathema. It is this business sentiment, I believe, that is one of the root causes of the twisted-spaghetti like intellectual property litigation between global telecommunication manufacturing companies

Yes, a royalty or licence fee system can work, but there are so many roadblocks to success that it's strongly not recommended for single, for hire designers to pursue this model.

However, I do agree very much with Scott Bennett regarding design's compensation value. I believe the design and sales activities are most highly attributable to market success, and should be compensated accordingly.

Re: Royalties on manufacturing

Postby yo » February 10th, 2012, 10:47 pm

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I've done some royalty work. What I brought to the table was design, manufacturing knowledge, factory connections, and desin support through the commercialization proccess. I also charged a design fee for the up front concepting. You need to be real partner I think in process I think.

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