ROYALTY RATES – WHAT IS THE STANDARD?

ALI_royaltyOne of the questions we are asked a lot is “What royalty rate percentage should I ask for in a License Agreement?” And the answer is . . . it all depends!

You should always try to negotiate the largest percentage you can, based on the knowledge you have of the distribution of the product to retail (where are the products going?), the type of product being licensed (some products inherently yield smaller royalties) and your “status” in the field of art licensing (have you earned the right to ask for higher percentages based on years of good sales and a name brand?). You should be aware, though, that if you are just starting your career in licensing, do not expect to get industry maximums.

The Licensing Industry Merchandisers’ Association (LIMA) recently released the average royalty rates for the vast number of industries currently doing licensing, and we thought we would share them with you.

Let’s start with the most significant and relevant average to most people reading this blog – that of Art Licensing. LIMA reports that the average royalty for art licensing agreements is between 3 – 6 %.

(What you will find is that manufacturers that sell to mass retailers (Walmart, Target, etc.) are pressed pretty hard by the retailers to keep their costs down low. As such, they cannot afford to pay large royalties, with the assumption being that the Licensor (the artist) will make up the difference in volume. As such, you will see those royalty rates in the 3 – 4% range.)

Based on these averages, you should expect a good deal to be in the 5% range; higher if you have credibility in the marketplace, and lower if the distribution is to mass retailers or discount channels.

And just to show you by example what other industries are achieving, here are the remaining published averages:

  • Entertainment – 8 – 12%
  • Celebrity – 7 – 10%
  • Collegiate – 6.5 – 10%
  • Corporate – 6.5 – 9.5%
  • Designer/Fashion – 4 – 8%
  • Sports – 8 – 11%

There are so many factors to consider when entering into a Licensing Agreement, with royalties being one of the most important. While these rates may not always apply to your situation, they do give you a general framework from which to make your recommendations when doing a deal.