Turning ID into Royalty

Your on the Jersey side then…

And I did not bash any group. If you recall I said that I wanted to bash the guy with a waffle-ball bat. A specific person. Close but not close enough.

I think I am going to have a hard time to make this royalty thing work to a percentage to retailer but I will try.

You’re calling out two groups in this comment: game designers and product designers. You may not have meant to, but that’s what you did.

I have never heard of this game designers crap that he can’t give me the files. In product design that’s what you pay for the file.

Problem is, it’s not anyone’s “crap”. Throwing out generalizations to cover your business communication problems is poor form. So is arguing the point now.

I’m done here.

You’re all gay as hell in my book.

I did the Royalty thing also on a few off road projects and a redesign of a pool heater. I got anywhere from 3 to 5% of the MSRP per product depending on the product and am living well.

The real trick of designing something at this level is knowing PEOPLE…Which is sadly missed in the design community. Most designers claim to know people and really don’t. You need to know what every type of person wants, and give them that.

oh and no one needs more coffee presses or devices… only design nerds do.

Not gay yet.

MSRP? What is that?

Manufacturer’s Suggested Retail Price.

Dude, you’re not ready. Seriously. Get a good book and read up. I hate seeing designers get screwed.

cut him some slack for not knowing what MSRP was, its not as if he’s signed away the farm just yet. he’s doing the homework now, BEFORE the papers are drawn up and signed, and that’s better than most people do.

back to royalties…is it a new viable business model to compete with the comoditazation of simple design services? No matter if it’s it’s thier idea or yours?

In the long run, raising the stakes and seeking royalty-for-service is only one more way to be undercut by someone else willing to do the work for less AND take a smaller slice of the pie. Unfortunately, it seems almost unavoidable.

davo, in your view is there any new or potential model that might work?

imagine a world where consultants develop the IP on their own, and then let the “clients” come to them. when’s the last time you got an RFQ for something you already did? probably never…and that’s the problem: we’re forced to compete against everyone else who hasn’t done the work yet either.

instead of a paradigm that puts the emphasis on what happens AFTER (or even while) the work is done…what about a more forward-looking strategy? why fill your website with examples of what you DID when you can just as easily brag about what you WOULD do (with all your valuable expertise and knowledge base).

strange, but interesting to think about…no?

Regarding royalties, and those models we keep wondering about…

Both the client and the designer are either looking for long-term value or short-term benefits, both of them are shooting for maximizing their future value, unless one of the other of them is in trouble and needs cash now to meet immediate needs.

Having been a web designer at the start of and the height of the internet boom/bubble, I saw a TON of clients that wanted to pay me in an imagined future of stock options, shared ownership, percentages of this and that. None of it was ever worth a damn thing.

As far as creating our own intellectual property, the most admirable business model I have seen in the last fifteen years is a group of young web designers that started their own sites to market products that are designed not by them, but by the site’s users. They totally flipped the script on product design, and are making millions on the efforts of their own customers. Nobody is getting shafted, the customers that design products which are actually produced and sold are rewarded commensurate with their product’s success. They designed the business model, and the web site, and bam, they are putting up billboards in NYC now. Not overnight, but a steady stream of successes and good decisions is leading them to be … true innovators and a success story.

If you think you know that your clients’ busienss better than they do, I would think that the best avenue for you would be to do it yourself. Come up with a product, design it, produce it, market it. If you don’t have the capital yet, either save your money, work on a smaller product, or find investors.

Gaining control over ALL of a products costs and profits would be the ultimate way to get ALL of the ‘royalties’ wouldn’t it?

Books? Any PDF books out yander or a book or three I can grab from Amazon on the royalty arrangement agreements issue.

I know in toy design it is most comon and I read the toy bible.

Royalty payment - Wikipedia Wikipedia does not talk about my specific issue. Waving up front fees in lieu of a percentage payment later as the potential product sells. It was suggested that we receive a 4% royalty on profits. How would one attempt to even define profits then is it not more common to take the percentage on cost to retailer as aposted on profits or suggested retail?

And there are ways to do this that are relatively safe. I’ve been considering doing this for a few years. This is very feasible, imo.

Basically all the law firms I have spoke with in the past two days have no real understanding with product royalties. Just Creative law for musicians and I understand that is much more complicated.

Any books you can recommend? csven?

Sorry. I’ve learned much of what I know through someone who does this sort of thing, along with a healthy diet of business journal readings. Sadly, my bookreading habits have been delinquent (I’ve only recently started reading actual books again).

I’ll ask around. You might want to check some of Core’s reference sections. There are things like links to contracts and stuff hidden in the bowels of this site (at least there used to be).

Revised Edition:
‘Licensing Art & Design’ by Caryn R. Leland
A professional’s guide to licensing and royalty argreements

Published by Allworth Press 10 East 23rd Street, NYC 10010 $16.95


Try contacting the apdf- Association of professional design firms. They have had some seminars on the topic. cbrownlee@apdf.org

This is a great thread, the best way I’ve learned about royalties is buy reading license contracts http://www.onecle.com Theres lots of reading but you get to know the nuts and bolts which should help in negotiating what ever you want.

I’ve been on both sides of the consultant-designer / manufacturer-marketer equation. To generalize: each side oversimplifies the other and believes that their value is less or that they can get more. To negotiate their economic self interests, usually neither side comes out getting rich or a great deal. If anything, these deals tend to economically muddle the situation so more typically, someone is going to loose. (It’s usually the one who needs to collect the money from the other. If the mfgr looses, how can the designer win?)

My suggestions/comments:

  • only deal with someone you trust with your money
  • don’t trust large companies or well known brands just because they’re large
  • typical design/development spend for consumer products is in the 2-4% of sales. without knowing specifics, i would say to expect 3% for a well developed unique and patentable design as others have indicated.
  • would you figure you how to not pay something you didn’t have to? (have you ever tried talking your way out of a speeding ticket?) there are many ways to get out of royalty agreements, and you’re probably not smart enough to figure them all out. see first suggestion…
  • if this is a way for a manufacturer to delay payment will they have the extra money to pay you later?
  • most reasonably intelligent manufacturers cap the reward side of the equation to 1.5 times of what they think is a reasonable design fee. in this case, your upside is 50% more, for taking on a lot more risk and delayed payment.
  • the manufacturer is usually taking on a lot more economic risk than you. for tooling, marketing, inventory, cannibalization, etc. what is their motivation for delaying design costs, which is a drop-in-the-bucket in their overall financial picture?
  • sales people are usually rewarded with commissions on sales, so the model is not alien. However, the manufacturer needs those specific sales people to keep selling every month. Do they need you? (And hence need to keep paying you to keep you happy.) Or could they move on to the next gullible designer?
  • if royalties are not paid, what is your expertise in getting paid? how do you perform an audit? how do you enforce a contract? how would you even know if you should?
  • how does a manufacturer evolve his product line with derivative works that require extra design effort on his part? How do you get paid for your contribution to those projects when they become different products than the one you designed?
  • i’ve seen successes and failures with this model. the failures probably outweigh the successes, and additional risk was taken to get to the successes, which i would qualify as getting paid at least something close to the consulting cost would have been.

If i were consulting, i might:

  • sell an idea outright after well patented (designing around patents is quite easy for most mechanical innovations). yes, patenting is an expensive process. (many larger companies won’t consider outside designs, or will require them to be patented before being seen. this way they are legally protected when they design around your patent. this is because they won’t view confidential material, to protect themselves from dispute later.)
  • take equity in a small firm i believed in
  • take royalty only if i needed to do so for an unfunded client, because business was slow, not to get rich. i would recognize that i might not get ever get paid. (most probably, the designs would be used by my client to try to get funding…)
  • take royalty if i was famous or was rich enough to defend myself if i needed legal representation.