Re: Royalties?
Hello all,
I'm in a position where I'm considering offering a client a reduced rate in exchange for royalties. I'm wondering if anyone on this list has had the experience and would be willing to tell me how you structured the deal and what pitfalls you discovered/avoided?
I don't know the details, of course, but, based on my knowledge of royalties in general, the odds are that you won't see much in royalties. Marketing a product is so difficult today that, in most cases, you can't expect high sales. And, if the royalties are scheduled to start after the costs are paid, your chances of ever collecting any royalties are practically non-existent. In other words, royalties are like stock options; they hardly ever work out for the recipient.
That's not to say that you shouldn't take the job. If the product is already well-established on the market, royalties become more likely. Perhaps, too, you need the work, find the product interesting, or will receive enough cash upfront not to be too concerned. However, don't expect anything from the royalties. Instead, regard any that you manage to collect as a pleasant extra.
As to how to structure the deal, some suggestions:
- if possible, get the sales projections and production costs from the client. You'll have to be skeptical about these stats, but they'll help you negotiate.
- Try to have escalating royalties, so that the more of the product that are sold, the more you get (this is why you need sales projections)
- Estimate from the production costs how many units will have to sell before the costs are made back. Royalties don't usually kick in until costs are made, so this estimate will help you assess more accurately your chances of every seeing any royalties.
- Ask to receive regular sales figures. You'll probably have to trust your client to give an accurate accounting, although the option of independent auditing is possible where the royalties are especially lucrative.
- Try to base the royalties on copies shipped. You probably won't get it, but this method means that royalties are received sooner, and not adjusted for returns if this deal happens to be on a retail product.
- If the product is a retail one, try to negotiate a reduced royalty on remaindered or discounted units.
- Try to avoid any liability on the product. If you don't negotiate this point, as someone receiving royalties you could easily be held partly liable for any problems associated with the product.
There's probably more, but these points should help you get started. You should be able to find some reference material about royalties either on the internet or in a library. Even though the material is more likely to refer to books or music than to software or any other product, it should at least give you some ideas.
--
Bruce Byfield 604.421.7177 bbyfield -at- axionet -dot- com
"It is our will That thus enchains us to permitted ill.
We might be otherwise, we might be all
We dream of happy, high, majestical."
- Percy Shelley, "Julian and Maddalo"Like stock options, royalties are a financial incentive that hardly ever work out.
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