Calculate Design Royalty Fee

Design Quote: This is the number you calculate for estimating the cost of providing design services to your Client using our design cost calculator, or it could also be any number you calculate yourself by your own experience or based on past work. If you do not know this number, use the Design Cost Calculator and afterwards use the Design Quote Calculator. The fee you enter to this section should already include your markup as well as it should account for other factors that could effect the pricing. To the box, enter only a number, all further calculations for royalty fees will be based on your initial number. To be honest, this fee is only relevant if you wish to get an upfront or percentual payment from Royalties, otherwise Royalty payments are paid yearly. The most common idea is to at least ask for your design costs for the first year, to be paid in advance to ensure security and to reduce risk. Ask an advance fee from any small companies or new clients, if these small companies and new clients do not agree for advance fees, simply do not work for them as unfortunately it is highly possible that they would not pay your royalty fees in future, but you could potentially trust large enterprises, government and other larger institutions who might be bound by contracts.

The base royalty rate calculation above has been created by us after study of different industries, we keep it vague and generic. The idea why highly technical or complex intellectual properties deserve more royalty rates is based on the initial investment requirement, for example an extremely technical or multidisciplinary complex design project could require hundreds of people working, many original equipment, original research as well as extensive studies, complex research and development investment and expenditure, and thus requires a higher rate so that the initial investment could be covered by royalty rates that would be paid by the Client. On the other hand, simple artwork does not require these crazy investments, they need also investment of your years, of course, but that is much less when you compare to projects that multiple people, sometimes thousands who work for the idea, thus you should opt-in for a lower base rate if your task is rather simple (after of course acquiring the skills which we of course agree not simple), but the rate should be higher if you cannot do it yourself and if you would need a group or very large group of people working on it. Choose option Non-Technical for Artwork, Non-Blueprinted Projects. Choose option Semi-Technical for Functional Art or Simple Industrial Design. Choose option Technical for Industrial Design or Architectural. Choose option Highly Technical for Mass Industrial Design or Complex Architectural. Choose option Extremely Technical for Complex Intellectual Properties. Default option is Technical.

Profit Margin of Client : The royalty rates are usually calculated based on gross sales, so a 7% royalty rate means 7% of gross sales to be paid from Client to Designer. However, that magical number depends on how profitable the Client is, if client is making 3% profits from sales (which could happen for perfectly competitive commodity markets), the client could obviously not pay a 7% royalty rate. When you do not know the profit margin of the client, you can guess it based on the industry and the Client's market share, for competitive industries, there will be many companies offering similar products thus the market share as well as profits will be lower, and for monopolistic industries or for goods or services that are highly specialized and without alternatives, the profit rate would be higher. If you know the Client profit margin indicate it above, for some Clients you can check this from their public balance sheets and financial tables, and sometimes you might ask to insiders. Choose option Monopoly, if the Client has almost complete market share, market share > 90%, in this option the Client produces original design work with no or zero competitors, able to charge highest premium thus able to make highest profit margin. Choose option Grand Player, if the Client has a major market share > 60%, in this case the Client produces original design work with a few or one competitor, able to charge higher premium thus able to make higher profit margin. Choose option Big Player if the Client has market share > 30%, in this case Client produces original design work with a small number of competitors, able to charge high premium thus able to make high profit margins. Choose option Player, if the Client market share > 10%, in this case Client produces original design work in an oligopoly market with a few competitors, able to charge modest premium thus able to make modest profit margins. Choose option Small Player, when the Client market share < 10%, in this case, the Client produces mass products with many or larger competitors, able to charge lower premium thus able to make lower profit margins. Choose option Competitive when the Client market share < 1%, Client produces near-commodities (where people choose products based on their price instead of other characters) with thousands of other competitors, able to charge low premium thus able to make highest profit margin. Choose option Choose option Perfect Competition, where the Client market share < 0.1%, where the industry Herfindahl–Hirschman Index is very low (less than 100) in this case the Client produces commodities with tens of thousands of competitors, able to charge a very small premium thus able to make the lowest profit margin. Finally, Choose option Known Percentage if you know the profit margin of the Client which could be indicated in press reports, corporate reports etc, for the modifier, in this case enter the profit margin as you know as a percent of gross sales, for example if Client is making forty percent (40%) enter forty (40) for modifier if you choose this option. The Default value is that the client is a Small Player with a small or modest market share.

Now, your base royalty should be [Base Rate] x [Profit Margin] but we would like to remind that you do not need to set a single royalty rate in your contract, in many cases, you could have multiple royalty rates based on conditions of the market, for example you could indicate to have a less royalty rate or higher royalty rate if the turnover exceeds a threshold or stays on a level and you could indicate different royalty rates for different intervals of turnover, keeping in mind the changes in profitability of the company could enable them to pay more or less royalties. In the next step, we will use the Royalty Fee Rate here and modify it further to have perhaps a more correct fee, taking into consideration several other factors. If you have insights on this rate, you can modify it at the very end to see how it would effect all other calculations.

Your Fame and Popularity : Your fame effects the sales price of a product, if you are very famous, you can increase the sales of the product by letting the Client co-brand the product with your name, such as Designed by Designer X, or Product by Designer X, or Signed by Designer X, thus if you are famous, you can leverage this and add some more percentage to your royalty rate that you request from the Clients, if you are, sorry to say Mr. Nobody in your industry, you are more risk to Client and thus you should perhaps decrease the royalty rate you request from the Client. Choose option Regular if you are not famous, not known in industry, have few published works. Choose option Almost Famous if you are known in industry, have dozens of published works. Choose option Award Winner if you are famous designer, known in industry, have hundreds of work mentions. Choose option World Famous if you are multiple award winner, world famous designer, have thousands of features. Choose option Celebrity if you are known by designers as well as non-designers. Default option is Almost Famous.

Depth of Development : If your product is tested and approved, you can request more royalty fees because having a tested and approved product decreases the risk factor of the Client. Less risk for Client means a bargaining chip, leverage for you to request more royalty fees. However if your product is at its initial concept stage, the client might need to develop it further till it becomes a working product, thus in this case, you have spent less brainpower and invested little to work and it makes sense to request less royalty fee for this work since the risks involved are high and also the fact that you also make the Client further invest in developing the design. Above, approved work means approved by government to be suitable for public usage, like issuing a quality or safety certificate. In practice if the Designer make high investment for conceptualization of design, you ask more royalty. Choose option Initial Concept for concept stage, raw idea, first draft, works. Choose option Developed Concept for prototype, mockup, or iterated and developed concepts. Choose option Proof of Concept for working prototype, working model, and highly developed concepts. Choose option Industrialized Model for final product, ready for market work. Choose option Approved Work for work that can be released to market with an award or non-government approval certificate. Choose option Certified Work if the product is tested or certified by government for market, especially for products that require intense government approval and intense testing and certification for national quality or standards. Default option is Proof of Concept.

Investment for Realization of Design : If your Client needs to make a significant investment for realizing your design, the Client is taking a risk by undertaking this design project and deserves a decrease in royalty rate, however if the Client can simply produce the product without any investments, the Client is not taking any additional risk for investment in technology or machinery and thus you could perhaps ask the Client to pay a higher premium than what they would pay normally. Of course almost all production could require the Client to make at least a bit of investment, thus for minor or slight investments or little changes to production methods shall not affect the royalty rate. Choose option Zero if the Client has to make zero investment, choose this option if Client can produce your design with existing infrastructure or technology. Choose option Minor if the Client has to make a trivial or minor investment, choose this option if Client needs slight updates to existing infrastructure or technology. Choose option Major if the Client needs to make a major investment, choose this option if Client needs big updates to infrastructure or modify existing technology in order to be able to produce or realize your work. Choose option Intense of the Client has to make intense investment, choose this option if Client needs significant updates to infrastructure, acquire many new machinery and if for example the Client would need to invent new technology to realize your work. Default option is Minor.

Advertising of Design : If the Client is foreseen to run a Major PR Campaign, in this case the Client is taking a higher risk for also putting a significant budget to advertise the design you create, then you can decrease the royalty rate based on the higher risk as well as additional spending by Client to promote your name. On the other hand, if the Client does not need to advertise the product, for example because your name is famous, or because the product has already been advertised, or if you would provide advertisement yourself via your own channels, then the Client would take less risks and also spend less on advertising and thus could perhaps pay you a higher interest rate. In practice if the Designer make high investment for Advertising of Design, you ask more royalty. Choose option Minor, if the Client will need to run a minor PR campaign that means very limited or little advertising required. Choose option Regular if the Client will need to run a standard PR campaign with standard advertising practices to create awareness about the product. Choose option Major if the Client will need to run a major PR campaign and if the product or your contract requires high advertising budget. Default option is Regular.

Award Winner Work or Project : If the Designer has won design awards, the awards create additional publicity for the Client, and the bigger the scope of the award, the higher its publicity and prestige benefit. Most international awards also grant an award winner logo that is paid yearly, but this logo could be used by Client to increase sales by helping convert more customers towards their own products. Most International design awards asks yearly fees for award winner logos except for the A' (A-Prime) International Design Award which grants a lifetime license to use the award winner logo for free, thus winning the A' Design Award creates an additional benefit without any added cost, furthermore the A' Design Award also engages in multilingual public relations campaign which helps the Client by either in form of additional reach and thus additional sales and profits or by reduced advertising budget requirement since the advertising is also partially done by the award. Furthermore, the Client is able to indicate that the Work is award winning design in their communication, and that the Designer or Creative team who made the design is an award winning design team. Finally, from another perspective, getting an award is sort of verification and appreciation of the product or project by third parties, and thus a product that is already been considered good could therefore impose less risks to Client and thus the Designer could ask a higher premium, higher royalty rate. Choose option Regional if the work has won a Small or Minor Award. Choose option National if the work has won a National, Medium or Major Award. Choose option International if the work being sold has won an International, Big or Grand Award. Choose option Universal if the work being sold has won a universal award such as the A' (A-Prime) International Juried Design Award. Choose option None if the work did not win any awards. Default option is None.

Will Client pay Upfront Payment, Advance from Potential Royalties? If yes, you can decrease the amount you ask for royalties based on the idea that your costs are being paid in advance which reduces your risk, in business expected revenues are usually correlated with risk, thus with less risks, you need to ask for less royalties, and having your costs completely paid in advance decreases your risk very significantly and you should reflect this on royalty fee calculation if the Client agrees to pay upfront fees. Choose option None, if the Client will not make any advance payments. Choose option Up to 25% if Client would make up to 25% advance payments based on your initial costs. Choose option Up to 50% if Client would make up to 50% advance payments. Choose option Up to 75% if Client would make up to 75% advance payments. Choose option Up to 100% if Client would make up to 100% advance payments. Choose option Full if Client would make 100% or even more advance payments based on your initial costs. Default option is up to 25% of your flat fee would be paid in advance and remainder as royalties. Also some designers would put conditions that require the Client to sell (or to be more correct, to pay for the royalties of) a minimum number of units each year, to ensure a stable fee structure, if this is the case, you can make a further deduction in royalty fees again based on risk reduction.

The number displayed on the left is the Royalty percentage rate. This is the percentage that the Client should pay from gross sales, not net sales or profits. Gross sales means if the Client is selling the product for hundred (100) coins, and if the rate is (X), the designer gets paid (X) coins, and if the Client is selling the product for a thousand (1000) coins, the designer is getting (10X) coins and if the Client is selling the product for one (1) coin, the designer is getting (X) percent which is (1/100 X) of a coin every year as long as the intellectual properties remain valid, that means this will last about up to twenty years, and even less or more depending on the country and type of patent or intellectual property, for example copyrights can last more than hundred years, and trade secrets, if protected can last indefinetely, while most patents will expire within twenty years. Consult a specialist if you wish to learn more about royalty rates for design. World Design Consortium can help Clients to make royalty rate based contracts with Designers. Design Mediators can help Designers to make royalty fee based contracts with Clients.