eternal question - royalties

Special Interest Areas footwear & softgoods
1

I know that the subject of royalties comes up as often as iPod shoes, but I’m trying to find some information on royalty rates for soft goods/bags specifically. At my last meeting with a client of mine (who typically pays me per hour), he mentioned royalties. The numbers he was mentioning were around between .5% and 1% of the wholesale price of the bags.

Is this typical for this industry? I’ve heard numbers from .25% to 5% for different industries, so I really have no idea where in this range something like a bag or whatever would fall.

2

I have no experience with royalties, but from friends who have complained about them a few things to worry about:

1_ the product drops and never makes it to production, you are not paid.

2_ the product drops but the company has the factory do a “variation” of your design that makes it to market and you are not paid

3_ the client puts your design into limited production and has the factory do a less expensive design “inspired” by your and you get paid very little

4_ the client is not forthright with how many sold and you have no way to prove it.

My friends might have just had bad experiences I don’t know.

3

run from the royalties deal if you’re not Newson, Starck …
you’ll get robbed and will not have the resources to fight back.

dd.

4

I’d like to know what typical and conventional rates are for this sort of design, regardless of the risk. I’m comfortable with judging the circumstances and relationship between my client and myself, but neither of us has dealt with the issue before, me being fresh out of school and him not really having used a designer before. The rate he suggested may be typical, or maybe its what he thought would be fair to me, or maybe its what he thought would be fair to him. As honest and forthright as he’s been with me, I’m not comfortable negotiating any points that I really don’t know anything about, so I’d like to know about it before writing it off.

5

I think it depends on what the projected sales and wholesale price would be. Can you get that information?

6

I have never ever been paid royalites - as Yo says, it can be pretty dodgy.

One of my cleints took on a freelancer, said he’d pay him royalties only - guess what. He didn’t get a penny, even thoguh his shoes sold!

I think the only way to try to get a share of the profit, is when you get a good reputation and constant best sellers, you can put your fee up a lot. If your work is a dead cert to sell, cliets will consider that higher fee worth paying.

7

This is not specifically related to royalties, but it may provide SOME tips on CYA (covering your arse) if you ever agree to a royalties-based or contingent contract.

I recently was approached by a former professional athlete, now entrepreneur, with a business plan for starting a shoe company/brand. In his plan, I would provide the shoe design NOT for an hourly or flat rate, but rather for 5% ownership in the new company. He also claimed to have an agreement with a current professional athlete, which he named, to wear the shoe for an upcoming regular season, and an agreement with a factory which also produces top name brand footwear.

Of course I had several questions which I asked and received a satisfactory reply. But before continuing, I passed the proposal to two different attorney friends. Based on their advice here is my response to the entrepreneur…

Hello ,

Thanks for the info.  While informative, there is still a lack of equity in our relationship. You have from me a portfolio of my work. You know my skill level. What I have from you are: 1) proof of a  Family trust registered as a trading entity under the name , and 2) several emails clearly expressing your passion and plan for an athletic shoe company containing an offer to me of 5% ownership of the company in exchange for my design input.

As convincing as your emails have been to me on a personal level, they alone would not satisfy the questions of a potential financial investor in your company. Considering myself as such, here are some particular documents I’d will need to see as well as a specific amendment to my proposed 5% ownership.

• trust documents which identify the trustee(s) (all individuals who have authority to work/speak/negotiate for the trust).

• the <athlete’s name> endorsement, including his agent’s name, business address, and email address. I would like to contact him to ensure consent to use his likeness, name etc.

• proof of the other owners, investors, etc. in your company; specifically operating agreements, corporate reports/papers, tax identification numbers, etc.

• my 5% share to be offered in the form of stock OPTIONS rather than outright ownership, in order to protect me from any debt lability should the venture fail.

These things will allow me to be as sure about your credentials as a business owner/entrepreneur as you already are about mine as a capable designer, and allow me to continue to work with confidence on this project.

Granted, it must be understood that such an agreement leaves you at risk to never get paid, but that risk is no different than that of many other business ventures. As one of my lawyer friends suggested, “If experience a long delay or any reluctance on the part of the owner to provide those things, run like hell in the opposite direction.”