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Thread: Design royalties

  1. #1

    Design royalties

    Ok. I did a computer edit of some modifications to an existing car to change the look of it slightly... nothing too drastic... just changed the look of the hood intakes, front air dam, side air intakes and added some rear ground effects. The guy wants to know how much I'd charge for the design.

    I have no clue as to what to ask or even a range as to what it would be. Any hints on how to figure out a good number to throw at him without screwing him or myself? I'd appreciate it!

    Ken

  2. #2
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    Re: Design royalties

    Ask him what is the most he is willing to pay ;D . No, seriously I would base it on a residual. For each item he makes and sells with that design you get a percentage. As for the percentage I would say any were from 10%-25%. There are alot of different ways to sell a design but I hope this one helps.

  3. #3

    Re: Design royalties

    Thanks. I wasn't sure if there was a flat rate thing or if it was a percentage of each sale, or what. It's good to have something to start with.

  4. #4
    Senior Member Don's Avatar
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    Re: Design royalties

    Royalties get down into a bad way.

    PitBull has a good idea about royalties but you also need to look at what the customer's margin and projected sales will be on the finsihed car from the designl. Some margins are not even up around the 25% mark depending on what is being built and sold. May put a burdon on him that he can't make any money at and then, you don't get paid either. Most of these guys are going for a lower price but get the original investment back from more sales.

    You also need to understand the difference between 10-25% gross or net. 10-25% gross sale value can be up past 40-50% net depending on costs of goods and build costs and will definitely put the guy under pressure before getting his original money back. 10% net is more common for a deisgn that does not require heavy build costs or initial mock costs. Straight royalties put you in a position of potentially never getting paid if nothing is sold. If the design is built and sold, you will repaid over time.

    Flat rate can be good as well where you charge him for your design time and sign over the design to him royalty free with appropriate legal documentation.

    In anything I have been involved through design and then royalties, we normally charge a flat rate that compensates us partially initially for the design work. Say 40-50% design costs, and then set up a low 1-3% royalty on sales. You can also set a sliding scale where the more sold the lower the royalty rate over time or cut points in sales revenue.

    Many ways to set them up to ensure both sides are happy with the arrangement but 10-25% is pretty high for a design itself in my opinion.

    If you are not sure which makes sense, total up your effort in hours for your design and apply an hourly wage to it that you think is fair to you or what you might want for your work. Take a look from the other side after that and ask yourself honestly if you would pay what you are asking if you were buying the design. Think from the customer side and it tends to adjust price as customers don't want to pay any more than they absolutely have to in general.... ;D

    After all that babble, go with what you feel is fair for your time and see if he is up for it.

    Cheers
    Don
    308 Ferrari replica
    Prova Countach 5000QV

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    Re: Design royalties

    Thank you Don for adding that. I had forgot to mention (of actual profit). Thanks

  6. #6
    Senior Member RCR's Avatar
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    Re: Design royalties

    How much time do you have into it? Engineering time here is figured at $50/hour.

    Bob
    Bob custom '84 Fiero SE --->>> custom F408
    http://www.madmechanics.com/forum/cu...ilepic37_1.gif

  7. #7

    Re: Design royalties

    Thinking wise or just computer editing wise? Computer editing was easy, it was the coming up with the designs in my head that took the most time. I doubt I could count that though.

    Ken

  8. #8
    Senior Member RCR's Avatar
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    Re: Design royalties

    $50/hr is just a ballpark figure. Sounds like you made the changes for yourself and someone liked them and offered to buy them. If that's the case, then the design time is essentially free, because it was for you. I'd just make the guy an offer, see what he's willing to spend, and work from there.

    So where are the pictures?

    Bob
    Bob custom '84 Fiero SE --->>> custom F408
    http://www.madmechanics.com/forum/cu...ilepic37_1.gif

  9. #9

    Re: Design royalties

    I told him I'd keep it between him and myself until he had a chance to get everything worked out on his end as to whether he wanted to go with that design or stick with his original idea. Sorry. I'll most likely be posting it on here when he makes up his mind.

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    Re: Design royalties

    Sounds good.

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