Tips on Auditing Royalties?

I did a design for royalties a few years ago for a small client and have been getting small royalty checks the past few years since they started selling it.

I now see the product popping up at large big box chain stores. I suspect they are underreporting sales to me cause there has been no significant increase in my royalties yet I see more and more well-known retailers carrying the product. I feel that surely a product being carried by several major big name retailers (Best Buy, Target, Brookstone, Frys, Amazon, etc.) is surely selling more than just a couple thousand units a quarter.

Anyone have any expereince or tips on how to audit royalties? What documentation should I ask for and how should I go about it?

Any other way to verify actual units sold other than from the client who may just make up phoney papers?

Do I or should I hire a professional who does this sort of thing and if so, any suggestions or referrals?

Any tips or advice appreciated.

Well the easiest way to go about it would involve calling the company you had the agreement with and talking to them. Just because business appears to be expanding doesn’t mean it is, maybe they have an arrangement for these stores to carry the product but at significantly reduced margins. They may be selling a lot more but only making a little bit more money, I see this happen a lot. Also carrying the product at a few doors or online isn’t the same as putting the product in every retail outlet that BB has, look into that.

Additionally the P of the P/L for a lot of companies has been getting hit pretty hard as raw material costs have been rising, labor costs rising and tepid consumption habits at the retail level. If your agreement specified you get a % of profits well that may explain why your check is the same even if sales are up, review your agreement.

If you really feel like doing some of your own detective work you can start by going to the companies that sell it and asking about the product. “How is this XYZ doing? Are people buying it?” Most people will give you an honest answer (unless they work on commission and are always trying to sell). If it’s selling like hotcakes but you want to ‘build more of a case’ then get in touch with who ever is making it and ask them, let them know your affiliation with the product. Lastly if you notice the guy is dropping your check off in his new bentley one week and then a mercedes the next, maybe get an attorney who specializes in royalties.

But really the best thing to do is call the company and ask them some questions, I don’t think anybody would get offended, and they should be pretty transparent because you do have a contract with them which they are legally obligated to uphold.