Designer's contract

Re: [spiers] Designer's contract

Paul,

Congrats on your progress...

You are right to work up a royalty contract with the designer, but just keep in
mind you never want to own any "intellectual property rights," that is to say,
never get a copyright, trademark or patent for yourself. If the designer wants
one, let him be your guest.

Having said that, simply ask for a copy of a previous contract, so you can
re-write it with the appropriate changes for your deal. Tell him you don't want
to insult him or waste his time.

As far as the rate of royalties, at our level we pay premiums for everything:
production, transportation, finance, you name, we pay top dollar. Happily, we
pass all these on to the consumer in the form of the premium prices we can
charge in the markets we work. So if 8% is his top royalty, agree to that.

Will that rate threaten the marketability? The process of putting samples thru
a trade show cycle will answer that yes or no. Yes, then proceed; no, then you
will also learn "why not." (Customers say wrong shape, weight, function, color,
material...what?)

Price point is far more important than price. For example, in gift and
housewares the $4.95, $9.95, 19.95, 24.95 price points are important, inasmuch
as product priced at these points sell better than those not priced at those
points. Retailers know this, so your feedback will include some of this
implicitly (at X price point you should have better shape weight color
function.. whatever. Things that may cost you nothing to change but make the
item marketable.) Anyway, bottom line is "don't speculate." You have nothing
to indicate 8% royalty will harm marketability, so don't worry about it.

Yes, royalty contracts normally are time bound, but I have found it better to
make them performance-bound. Instead of "this is in place for 10 years", how
about this is in place as long as it generates $8,000 per year in royalties
(based on $100,000 in sales)" or something like "I have 2 years to get up to
$100,000 in sales, and I'll stay within 80% of 100,000 each year or the
agreement becomes null and void."

Point is, we only want an agreement as long as we are both making money on the
item, and things change so often and rapidly at our level, that performance is
better than time.

John

How much should I pay my designer in royalties?

We have worked on our product design for a couple of months, and he is
about to create drawings. I suggested, therefore, that we sign an
agreement. In my business plan which he reviewed at the outset of our
project, the financial statements included royalty payments of 3%.
Since then, I have seen rates of up to 5% for other designers working on
dissimilar products, but have no data on what lamp fixture designers
typically are paid. Should I put forward 3% and let him request more,
or leave it blank and ask him for his "going rate"? He has experience
working directly with manufacturers for royalty payments, but no
experience working with an importer. I don't want to insult him, but by
the same token do not, obviously, want to burden my sell price and
threaten it's marketability. The difference between 3 and 5% is not
huge, but what if he asks for 8%? He has asked me to draft the
agreement and is therefore expecting me to choose a rate.

Part 2 of my question regards the manufacturing license. Is this
typically time-bound, if so, what is reasonable? I'm thinking 10 years
will outlast the life of generation 1 of the product, but what about
follow-on designs - how are they handled?

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