Compensation on a design

Hello! I have a question relating to compensation that I was hoping I could get much feedback on.
I have worked on a design for urban furniture and there has been interest from the city in my design. We have a first order that should be completed soon. I own the IP on the design as I have drawn and created the design. I’m working with 2 workshops to get my design fabricated.

What I want to know is what is the percentage of the price of the furniture can I expect to receive as compensation? If for example, the furniture is priced at $5000, that amount needs to cover the price of materials and some left for the workshop. So how much should I expect to receive? Is there a general rule in terms of percentage? 10%? 20%?

I hope someone can answer that question so that I can confidently approach the workshop partners with a fair asking price. Hope my question makes sense and that I get proper feedback.

Thank you

Hello Yami and welcome to the core77 boards. I’ve moved your question to a spot where you can get some answers.

Don’t think about it as a design fee but as a sales margin. If you’ve done the design work and someone is looking at putting “orders” for the first two, you’re not providing design services, you’re an urban furniture company (even if you’re outsourcing the actual manufacturing), congrats.

You don’t usually approach workshops with an asking price. You usually send them the design details and will provide you with a quote. In most cases they can source the material for you (IE various metals if it’s a general fabrication/welding shop). If you’re still on the small scale, it’s way easier for them to deal with getting the materials.

However, it certainly makes sense to know how much you can spend on manufacturing for the project to even make sense being taken on. I would personally look at getting quotes before committing to a sale. That way you can know your margin a head of time. Some folks on the forum might have a better idea of a reasonable margin. But 10-20% seems quite low to me.

Side note, make sure your paperwork is in order with both your workshops and the city before any agreements are made. Is the city paying you up front? Are the workshops expecting payment in 30 days? Who’s paying for delivery? Who’s installing the furniture?

If you are handling the sales and distribution of the product, I would think it would help to think of yourself not as a designer looking for a fee but as a company putting together a business plan.

To do that I would think about a few things.

  1. How many do you expect you can sell in a year?
  2. Once you have that number, use that to negotiate a BOM cost with your fabricator (can you fabricator handle that volume is another question to investigate). They might also ask for an MOQ if you negotiate the rate based on that forecasted sales number.
  3. what other costs can you expect to add to the BOM, packaging, shipping, marketing?
  4. Once you have the total cost per unit I would double that for your wholesale price. Perhaps that is the price you will be selling them to the city. If you sold them to a retailer they would likely double that number again.

    Now if the workshop partner is going to not only fabricate it but also sell and distribute it it is a different approach. Did you get the city’s interest in purchasing the furniture? If so I think you would get a sales commission as well as a design commission. Both of those numbers vary quite a lot depending on the situation but I would think your numbers are on the low side. Typically I think a royalty is much less than 10% of the wholesale price, but that is for a mass made good.

You own the product so you are in power of this design ever coming into fruition.
Therefore the price is yours to set.
The first question to ask is How much do I (my company) want/need to make?
Keeping in mind a long-term business plan - taking into account expansions, salary, re-investments, marketing, business development, R&D.
Then ask, how much will my customers be willing to pay? If they are not willing to pay enough, look for other markets too.
It is not uncommon to have 40% of the gross margin as IP owner but your case is a direct sell so it will be much higher.
30% of the product price is a realistic number but again, how much do you need for a stable growing business?
Do not be afraid to set high prices initially, other ones in power will always cut it down again.
For comparison, I arrived from Norway yesterday where tea is $20 a box and reindeer meat $55 per pound.
All the urban furniture is highly designed and surely very expensive to the city.

Man, you approached this ass backwards. Or, you are leaving out a lot of information.
Who negotiated the sale price with the city? You or the workshop? Is this a one-time deal, or do you expect other sales outlets?

First of all, cogs is cogs (cost of goods sold). Raw materials + labor + overhead + profit (for the workshops) = your cogs.

Second, profit is profit. Price - cogs = profit. You can use that equation, and so does your shop. And so does the the tier 2, tier 3 and so on, suppliers.

Third, price is determined by what the market will bear. You may want to sell it for $5,000, but you may or may not get it. Your workshop may want to sell to you for $2500, but they may or may not get it.

Expect your tier 1 suppliers (the workshops) to get 30-40% profit margin. Tier 2 and lower will run tighter margins. Your wholesale margin should be at least 50%. All pricing and cogs should be determined before a single penny is spent.