Turning ID into Royalty

A lot of people (myself included) are throwing around the the words royalties, IP, and entrepreneuring on these business threads. I’m curious if any of us has had success making royalties, or successfully marketed their own product. (on a large scale, since we all think it is kind of a ‘holy grail’ in design, and the only ‘real’ way to build wealth). I’ve seen it done on a small scale, but haven’t seen anyone retire on their royalties yet.

If anyone does have success, could you tell us how you did it? Were there a lot of failures before your success? Any other insight to increasing the success rate?

Also, please share any insight on choosing which path to pursue (Royalties vs. entrepreneuring) for a specific product.

Thank you in advance for the responses!

Apparently not too many.


Well, we have tried royalties off and on for over a decade at our design consultancy, but it has been very hit and miss. Since so much of a product’s success relies on factors and decisions out of our control (distribution, sales, marketing, costing, product life, etc.), it is a big gamble. In total, the royalties have not covered the fees that we have given up in exchange.

The more willing the company is to give you royalties in exchange for fees, the higher the risk (often exponentially) that the royalties won’t cover the fees. :slight_smile: So in the last several years, we have focused on coordinating the manufacturing of components of the products that we design for our clients, so that we get a cut of the tooling and production costs. This has proven to be less risky and more profitable, and will soon make up a large percentage of revenue for the company. We are also focusing on rolling out our own products, since we have built up our expertise on the manufacturing side and established good contacts in various retail stores. We believe this will also be a significant source of revenue in the future.

Sounds like a very healthy perspective. I have heard figures re new product introductions that suggest that 9 out of ten fail in the first year and that 8 out of ten that make it past, fail in the second. Most of those are probably brand extensions in food and such, but it is very difficult to introduce a new product to the world. Also, it requires a great deal of focus and that time/attention needs to come from somewhere.

howdy mark.

We had hooked up with Home Depot x-buyers. That’s cool because they need help and they know all the current buyers at Home Depot. They don’t have degrees in anything which is bad because they only know design from their belt/gut.

The products we developed were all associated to a skew and a royalty. Since we did not have direct access to the Chinese manufacture and the dammed Chinese made it very difficult because they changed everything we designed which changed the skew that we are associated with. Products hit the market that looked much like our product skew but on a different brand. Nightmare! I like to say we have twenty or so products at home Depot but in all reality there are only four and those were put thru because they were developed without the royalty. The others only resemble our designs.

The Chinese made everything difficult and obviously wanted us out of the picture. One time they actually convinced our x-buyers that we were sending corrupt data when I figured out that thy did not have the new version of Pro/ENGINEER and were in fact on Pro/E 2001 and not the new WF2.0 That took a month to figure out.

Then there is the hole thing of paying out on royalties. Do you get the cost to the retailer which is what I prefer so one does not have to review profits. My motto is:

‘define profit’

If it were my company I would always show a loss.

I prefer hourly.

Richard Sapper, Tizo Lamp… along with consulting big corps, I always heard he had made a deal with Artimedi for royalties on that lamp. He seems to have done alright - House right on Lake Como, Italy and I’ve heard one in LA too

exactly, we should all experience such a success…but for everryone of those…

You know what really gets me going…is people who take those examples (discarding the other 95% of the real world) and compile them in a book and then make a fortune on the people who buy it…Here’s how Mrs Fields did it, here’s why Starbucks suceeded, here’s what Apple was thinking…

A bit like taking out ads in the newspaper don’t cha think…

Hmmmm… bit of a rant there…

you should go for royalties when you have a name. if consulting as a group it wont work because the customers could care less if it’s company a or company b but they care if it is a famous designer or even a fashion house like armani. of course armani is worth more as a name or brand than it’s worth as a line. then you have chanel which hires lagerfeld and so on.

i think it’s all due to the fact that rich americans have a hunger for shopping brand while elite in other countries just copy americans. it’s all a soap opera dominated by the couture heads in NY 20’s onward who have created a very sophisticated network of advertising and brand shopping through gloss media and later hollywood, oscars, and other events. you know the crowd i’m refering to > do i need to explain?!

it might have been fun for a while but i believe an anticulture has formed = the underground elite = after the internet. it’s the new media where people interact so nothing is really worth the royalty except for those who have the extra money they want to spend the old fashioned way. in other words instead of anticipating a glamorization bomb of the established-old- behind the scene-media the anti-enthusiasts go hunting for ideas that are cheap - nonbrand - straight forward , practical and adaptable to consumer target environments instead of the producer’s. we see this happening in the success of home made video sharing on net, music, art, etc.

the days of royalty for design are numbered because the audience is not gonna be there in a few years. concentrate on meaningful products that do what brand fails to deliver.

funny how some analysts blame video games for the recent box office failures specially on christmas and newyear.

wrt 2001 vs WF2.0, that’s exactly why I’ve not bothered hassling with PTC’s violating my maintenance contract in order to upgrade beyond WF. This is in line with my comments on this fact of life in the S&T section of the forum and in other related threads. A shame you didn’t ask around. I could have told you what the problem was in a day and saved you a lot of time.

But don’t blame the Chinese. That’s like the person driving 100mph blaming the person driving 65mph for a rear-end collision. Easier for you to determine the issue than for them, isn’t it?

Back to the original question: I’ve tried to set up agreements, but in the end the other party either boldly devalues Industrial Design or changes the agreement/contract such that the percentage is based on a worthless metric (e.g. % of profit instead of % of net sales). The minute that happens, the professional relationship ends.

Maybe someday…

In the old days I think a handshake was the deal. It wasn’t a question of how to monitor%sales…that model may still exist, Idon’t know but it would seem that perhaps Herman Miller and Bill Stumpf would have some kind of deal like that or perhaps OXO and Smart…but that kind of good faith is hard to establish in today’s corporate culture…

Great topic again… So here is my 2 cents…

The big names are the ones who make big money from royalties. For hacks like us the only way to get into this game is by getting famous or having another job for steady income. I know of a couple of designers that make very good money through royalties, but they work consistently with the same manufacturers releasing new designs twice a year. Unless you find a client to take you under his wing, you are going to have to design something spectacular and show it around without getting screwed. You also have to be very careful that what you are designing can be made by the companies you are talking to. On top of that, you have to sell yourself and the design to a manufacturer you trust and hope they want to continue working with you on future designs.

To sum it up, it can be done! I think that if you love designing even when your not getting paid, then you should try it out.

I also think that people who have experienced success at this are not very interested in sharing their experience with us. Who would want more competition than they already have?

True, as posters AchellA and ufo mentioned, having a big name obviously helps, especially if your name is such that the client actually uses your name to promote the product (e.g. Philippe Starck, Michael Graves, et al). That’s one thing I really like about the furniture industry, that royalties seem to be the norm and clients promote the designer behind the product. A lot of our clients actually want to hide our name, either to appear that they did the design in-house or to prevent their competitors from contacting us.

A funny story. For a while we were pushing our clients to put our name on their products, to “co-brand” if you will. We got our name on a few products, usually printed on the rear label that said something like “designed by … for …” On one consumer product we put our logo and website. When the company went belly-up a few years later, we started to get calls from their customers looking for technical support, warranty information, etc. Be careful what you wish for!

Anyway, I am of two minds when it comes to royalties. On one hand, designers who truly contribute should benefit if the client/product is a success. On the other hand, since the margins of most of our clients is declining steadily, I can certainly understand why they are reluctant to give us a piece of the pie. Heck, most of the time the internal staff doesn’t benefit much if the company or product is successful either (except to keep their jobs). Perhaps a more equitable arrangment is to offer stock options for trusted outside consultants like they do to employees. That way designers can benefit if the client is successful (if you agree that a rising stock price is a good indicator of a company’s success).

Thanks for the responses everyone! Between my first post and today, I’ve read a book on royalties, written by a product designer. A one man show, and not terribly famous, yet able to support himself well off of royalties.

I’m slowly changing my skeptical view of royalties, and starting to think it can actually be done. I’ll let everyone know when I get my first check :wink:

just my two cents:
I have a few contracts with royalty clauses. Unlike the stories above, they are not with consumer products in big-box stores.
Instead they’re with a few small clients who really value the defferred payment schedule of a royalty agreement and are happy to pay the premimum that comes with this type of agreement.
I personally don’t understand the value of a royalty agreement to a company who can afford to pay up-front. Why would a royalty benefit them, since they can look at the long-term profitability of the project and are not limited by investment constraints.
My agreements are with small firms who need to be investing in R&D, tooling, and distribution. The royalty agreement provides them very low short-term liability/outlay in exchange for reduced profits (ie higher product development costs) in the future. These projects have been quite successful and, although we don’t rely on them to pay the bills, they provide a nice complimentary revenue stream. Also, almost every client has come back for more projects some have been royalty, some have been straight fee-for-service.

Check out these guys:

Design Edge - they also started Wetnoz, a line of designer pet products…

Many other design firms are exchanging services for stake in the clients businesses.

I know that these are not royalties, but consultant design firms need to innovate on their business models if they are to achieve true sustainability.

There are lots of design firms doing this. And have been for years. It’s not a new thing. If anything, pet products seem to be the favorite.

I’m actually doing the royalty thing now. It’s not quite what we’re talking about here though - I’ve branched out from ID to some degree. Can’t discuss it atm since the project is in progress. Hopefully I can discuss this next year when my time on the project ends.

ok now I am up to that question again. Royalty. What the heck is 4% on profit and how should I ask for a definition of profit?

I would feel more comfortable with 2 percent on cost to retailer.

Help! advice…

whas up csven? did you find to many mis spellings in those tutors?

a) Forget % of profit. Get a percentage on sales. Profit is tied too closely to how they conduct their business. Sale price is very much market-driven. If they overprice (to cover their inflated costs due to poor management), you get more money on lower volume. If they underprice (because they’re inept), you get more money on higher volume. This is assuming on both counts that the product is worth something. If it sucks, you’re out of luck. But then so is your partner.

b) I don’t need your tutorIALS, Bart. The only time they might have helped (as a reference for what you were telling them) is when some of your former students have contacted me asking for assistance on their CAD projects… which, btw, I provided free of charge. And without asking for a password.

Thanks for the feedback on the percentage thing.

If my students ask you anything then you are close to Chicago or we have met at some point? Maybe you have already bought me that pitcher you owe me. :wink: And I did not mean to imply you needed anything. Just curious if you picked thru and (since you are very picky or thoro) you would try to bash me for mis spellings or something.

So you know Curt C of Symbol? They are about to be swalloed up by motorola

About the percentage stuff. Should that be a percentage to the retailer / ho-sale or how do I write that up?


If my students ask you anything then you are close to Chicago or we have met at some point?

No and No.

Just curious if you picked thru and (since you are very picky or thoro) you would try to bash me for mis spellings or something.

I don’t bash without reason. You started bashing game designers without cause. I may not be exactly a game designer, but I do work with them. Close enough to warrant my speaking up.

So you know Curt C of Symbol? They are about to be swalloed up by motorola

Yes. Long time back now, though. And you know that I know about Motorola since you visit my blog (you have an odd, recognizable host name).

About the percentage stuff. Should that be a percentage to the retailer / ho-sale or how do I write that up?

Retailer will mark it up independently. Not tied to the company you’re dealing with. Percentage of their sales is the cleanest link to the actual product. Most companies don’t like this because they’ll try to get creatives into the % of profit monkey-points game (the same way Hollywood does it). Stick with a number that has meaning and should be easy to have audited if you have to go in and do that. The number won’t be as high as the profit number they throw you, but it’s better. I’ve heard ranges from 3 - 7% depending; usually in the 3-4% with the occasional 2%.