What to Expect from Your Investments: Royalties

What is a Royalty?

Royalties are payments made by the licensee to the licensor for the right to use the asset patented by the licensor. Normally, royalties have an agreed upon price beforehand which are based on percentage of gross, net revenues, or fixed price per unit, and the right to collect future royalty payment. A license agreement will define all the terms about payment and usage.

Factors That Affect the Percentage of Royalties

The quality or originality of the product, patent protection, and the profitability of the product. The starting percentage for profit ranges from 3-6%. It may not seem like much for your invention were you to sell it yourself but can become insanely profitable if your product is popular and it is sold at a high mark-up. Say your product sells for $10 dollars as a single unit and it is then sold for $20, your 5% cut would earn you 50 cents per item sold and will add up quite a bit over the year. Which is not bad for not having to sell the items yourself.

License Vs Producing

That leads to the question, should you license or produce your product on your own? Licensees put in a lot of time to perfect their product, be it an actual invention or a more abstract idea. They then take the standard measures to protect your ideas.

When making the choice of whether or not to license or produce your invention, you must determine what kind of person you are. Are you merely interested in inventing new products or producing ideas? Or do you have an entrepreneurial spirit? Licensing will work best for the former individuals since it allows them time to merely invent while reaping the benefits of their invention or designs. For the latter, they can combine both their love of design with their ability as a savvy business person.

If you are worried about anyone making changes or using your designs without permission, there is the option to copyright which will put that worry to rest.

Royalty Deduction Tracking

It is important for both licensors and licensees to keep track of royalties. At Dependable Rights, we provide software that keeps track of audits, reports,payments, product development and much more. For additional information, please call 877-289-8431.


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