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Design royalties


#1

Hello and a very Happy Creative New Year!!

I have read the posts on the royalty fees for designs. My situation
is a bit different…& hence i require the expert advice from all.

I had been approached by a company (yet to establish & give a name
to their company) for a new venture that they want to try their
hands in. This is silver jewellery to be designed by designers like
myself and they shall have an infrastructure to get it manufactured
so that there is a quality control. They will get the samples made
and all subsequent orders will be processed via the designer.

They have given me 2 options for the payment plans:

  1. an up front payment for my designs(which i found to be very less)

  2. a royalty based payment for each unit sold.

My questions are:

  • that which is the better way and how does one go about deciding
    what is the correct or reasonable amount for the royalty based
    payment mode?

  • Also, how does the designer (in this case, me) ensure that the
    production orders are routed through me?

  • What are the alternative payment modes that are used?

All advice and suggestions are welcome.

Hema, looking forward to an exciting new year…:slight_smile:


#2

I don’t know beans about royalties. But I do know how deals should
work.

they shall have an infrastructure to get it manufactured all
subsequent orders will be processed via the designer. given me 2
options for the payment plans: 

Based only on what I read here it appears they will be doing the
marketing and actual production while you handle the orders. So who’s
being paid a royalty here? Are they buying your design or are you
paying a promotion fee? If they manufacture do you still retain
artistic control? What happens when things go wrong with orders? Ex.
you get a lot of orders but the co. can’t keep pace. Now you’re
(maybe) dealing with irate customers but possibly have no control
over production. Who gets the bad name?

You need a clause that permits both of you to audit. Without that
audit there is no way you or they can be sure of what is due to
either party. Who initially receives the customer’s money? When is
payment between you and the co. made? What about returns?

This a business that has zero track record. You would be wise to
obtain credit reports and background on the principals of the new
company.

How long is the term of this contract? Can you renegotiate royalty
rates and payment arrangements later on if you find you’re being
short shrifted?

Ask them for a sample contract and tell them you’ll have it
reviewed. If they ask you for money to write a contract let that be a
warning signal.

There will many more questions once you see what the deal truly
entails.

Ok, I’ve been the pessimist. But this kind of a deal might be real
sweet if it works.


#3

Hello I had a huge pessimistic reply written up about all of the
possible things that could happen in this situation but decided to
simplify it this way: I think that you need to look at the
reputation of this company, ask for references, the fact that they
don’t give you thier name makes me suspect( unless they are Tiffany
and don’t want to let thier upscale clientel know they are subing
themselves out),otherwise they should not be afraid to let you know
who they are etc. I have found in this business that there is alot of
trust; how many times have you wanted stones and some guy on the
other end of the phone says “i will send them out, you pick what you
want and send me back the rest”. As far as the royalty verses
outright payment goes…I would pay outright if I could afford it
just because it would reduce the hassel factor in the future.

So ask for refences, Do your homework on them,… D & B report maybe!
Try a few pieces for a start, see how that goes before you do the
whole group

If you are turned off by them I’ll bet you could find alot of great
members in this forum who might be able to help you.


#4

Hi Hemma,

The final outcome must be the signing of a contract preferably
written by your lawyer. If a contract is written by the other party
then it is most prudent that you get legal advice before making a
counter-offer, or accepting and signing the contract. You should
expect the other party to follow a similar procedure leading to a
written contract covering all the aspects you mention and then some.

Your options include a stake in the new company and the opportunity
looks ripe! An ideal mix would be some equity in the new company, and
some up-front payment to you. The balance of the two depends on your
faith in the prospects of the new company. If the prospects of the
new company look good then you could end up receiving a ‘passive
income’, that is an income that comes while you are on holiday,
sleeping, or doing other stuff. If the prospects look poor then
up-front payment takes priority, but there is risk that it may not
happen.

Find a good a lawyer who will give you a reality check and guide you
(and ‘your’ company) towards business success.

Alastair


#5

Hema,

I would say don’t be greedy, take the money up front. At least then
you have the money if the company goes out of business and you don’t
get into any arguements about the numbers sold, bad payments etc…
You always have the ability to design more if you need more income…

Best wishes,
Ian
Ian W. Wright
Sheffield UK


#6

Good questions all.

Paranoia is best in situations like this. It also makes good business
sense.

Check out their backround. Do they have a history? Apparently not, as
I review the posting below.

That alone should raise many alarms. There are a lot of ‘wanntabes’.
It’s much more difficult to deliver on promises made.

It could be an opportunity or the possibility of disaster. One can
never ask too many questions.

KPK


#7

Dear All,

Thank you for having responded to my earlier query. However, this
company (made up of two individuals and are still in the process of
giving their company a name) has had problems about the manufacturer
because he is apparently too busy with the orders that he already is
processing and so cannot take up their work. The alternate solutions
that have been put forward are as follows:

A We are asking of you to invest 50% into sampling, by giving us a
50% discount. So every time we sample new designs by you, you invest
50% into it, by splitting the costs 50-50. It is a one time payment
for the samples, after which all transactions will be for the bulk
orders. Both you and us- we will recover this investment in future
bulk transactions. OR B. We pay you 50% upfront, and the remaning 50%
we will pay you when we receive our first order. So we would pay you
50% of the costs right now. However based on the response to your
pieces we would only be paying you 100% for the samples on which we
secure an order. The intial amount would be adjusted towards the
payment of these samples. That way, we leave to the market to
determine the response towards your designs. You get rewarded and
paid as soon as a favorable response is generated, and we reduce our
risks in case the designs do not meet approval.

Do companies work like this?? even if they are starting a new
venture!!!

I would greatly appreciate your views regarding the two options
mentioned above as given by the company.

Regards,
Hema


#8
I would greatly appreciate your views regarding the two options
mentioned above as given by the company. 

Doesn’t sound very solid to me. You need a written contract if you
proceed.

Elaine
http://www.CreativeTextureTools.com
Helping You Make Your Best Impression in Clay


#9

Hema, I read that several times and I still don’t have a grasp of
exactly what’s happening.

A We are asking of you to invest 50% into sampling, by giving us a
50% discount. 

A discount off of what precisely? If the sample costs $125 to make
are you to pay them $62.50 or will they pay you $62.50? It quite
unclear who is paying who here and when.

We pay you 50% upfront, and the remaining 50% we will pay you when
we receive our first order. So we would pay you 50% of the costs
right now. 

Sounds like, as written, they pay $125 to make the sample(since they
are in essence the manufacturing liaison), then pay you $62.50 now,
and $62.50 later. Or are you to pay the manufacturer directly and
receive reimbursement at 50% from this new company? This doesn’t make
sense to me.

So the manufacturer they had in mind can’t take the business? This
is not a good sign. They should have had their ducks in a row before
making a proposal to you and other artists. I strongly urge you to
look into just who these people are, their jewelry
manufacturing/marketing/financial/legal experience, and so forth.

What plans do they have to get these samples out in front of the end
customers? If they do not already have a concrete plan for marketing
I’d be very cautious about proceeding, because apparently they did
not have a concrete plan for manufacturing.

The fact that they have not named their company tells me there IS no
company (the first step in business is to incorporate or LLC or at
least register a DBA with the State)…says to me they are putting
out feelers and as yet have no capacity.

My own feelings here, and I admit they are very subjective and based
on slim facts, is that you have four hands in the pie. The
manufacturer, this unformed company, you, and the end buyer(which I
assume is to be a retailer, since they will be taking orders from
samples. Retailer are used to sometimes long lead times to get the
goods, consumers won’t wait weeks/months). That’s a pretty complex
recipe.

A suggestion would be for this company to arrange a meeting of all
parties involved…manufacturer, the company and you along with other
artists propositioned. All questions could be aired and hopefully
answered and everyone might get a feeling of legitimacy.

Don’t be put off by my skepticism, I’ve found its best to anticipate
problems before committing. Keep an open but analytical mind.


#10

Hema,

Double or triple your prices and take the money up front. These
people sound too much like their lawyers. The fact that their
’current’ manufacturer is too busy sends up warning flags.

I normally will front 100% of the design costs on custom work before
any money changes hands and metal work starts, but this deal sends
shivers up my spine.

Jeff getting older and more cynical… used to the trust of a hand
shake


#11

Hema,

In and of themselves, designs have no value.

I can sit and design stuff all night long, but if I don’t figure out
a way to distribute my designs profitably, they will never have any
value what-so-ever. We worry about others “stealing” our designs, but
if in fact we won’t invest the necessary capital to publicize our
names and popularize our ideas anyway. Why should we expect any
return? Do you really think that a stranger should buy your ideas
because you think that they are good? The company is obviously trying
to keep their costs down. Hey. If they publish your designs in a
catalog, they are still building value in them. They are really just
trying to find a way to work with you and build out a unique line.
What’s the problem?

I think that David Yurman is a good example. He didn’t invent wire
rope. Wire rope has been around for thousands of years. He knows
that. What he did do was to popularize his designs. He invested in
them and gave them real value. He has sunk millions of dollars into
advertising. Apparently, he has done smart advertising and it has
paid off. We are all jealous. So what. The law says that if he
doesn’t protect his ideas, they will fall into the public domain. We
resent him for that too.

I’m too tired now. Hope you catch the drift… zzzz…zzzz…


#12

Hema - This is an under-funded business that wants you to take risks
with your time and designs. If you want to be partners with them,
take option A, and adjust your prices for design so that what they
perceive as 50% covers you for your time. Option B leaves you in the
cold if these folks can’t market to the appropriate audience. What
happens if they never can get your designs manufactured? What happens
if they decide that you are not their designer anymore? Do they quit
communicating with you and then proceed to sell your ideas where you
don’t know about them? Do they use your non-selling ideas with
someone else. The list goes on.

If you want to be in business with these folks - and I wouldn’t -
take the lead and set your own scheme. These folks don’t manufacture,
have no history of selling, and want you to take risks with them. If
you still decide to work with them, be very sure that you have access
to their bookkeeping and have a good accountant and lawyer. This
"opportunity" is snakebit.

If the deal looks too good to be true - it is. Your postings on this
subject tell me that your gut says this isn’t right. Go get the book
"Blink" and read it. It will help you understand that your internal
reaction to the deal is the one you should believe.

Judy Hoch


#13
Doesn't sound very solid to me. You need a written contract if you
Proceed 

I would have to agree with Elaine and this is coming from someone
who actually bought swamp land in Florida.

Bobbie Horn
Brownfield, TX 79316


#14

Thank you for the advice and it seems to me as well that instead of
investing my efforts & finances for someone else to make money, I
should rather think of a solution where there are satisfactory gains
and little apprehensions.

True, a design has little value until it is made but what is fair???
A no risk business for the company with the investment coming from
the designer (& the designer’s name is not even mentioned) or a
venture where the designer stands to be a partner if the risks are
50-50???

Regards,
Hema