Question

Topic: Branding

How To Set Price For Design Of Product Graphics?

Posted by Mary Ellen Hickman on 3/1/2011 at 5:31 PM ET 500 Points
I need help providing some perspective on how to set the price for graphic design for a product. The concept/product design of a new, fairly unique reusable fabric lunch bag was designed by the company owners, materials were sourced by the company owners, and prototypes and manufacturing process was created and refined by the company owners. They used an outside designer (friend/relative) to design the graphics that fully cover the outside of the bags (you might think of this somewhat like the graphics printed on fabric used to make a dress, or the pattern or design of a kitchen towel). The owners thought that they owned all rights to all designs; it turns out that they don’t. Now, the owners need to negotiate an appropriate value to buy these designs. There is a bit of debate over straight hourly pricing vs. straight hourly pricing + a percent of annual revenue. Is it common to charge a percent of annual revenue in addition to an hourly price for design, and if so, what is that equation, typically? The more specific you can be, the better. There will be a meeting at the end of this week where this will be discussed for the first time, so it's a bit time-sensitive.

A few more details on the design work performed and number of products sold:
Year 1: 1 design, 2 color options; units sold: 200; geography: 2 states
Year 2: 7 new designs, each with 2 color options; units sold: 35,000; geography: US/50 states
Year 3: 6 new designs, one color option only each; units sold: 300,000; geography: US, international (8 additional countries)
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RESPONSES

  • Posted by Gary Bloomer on 3/1/2011 at 8:19 PM Accepted
    Dear Mary,

    What you're talking about here is licensing: that is, a designer granting the rights to use a specific visual element (in this case, a wrap around design), to a third party (in this case, the client) in exchange for an upfront fee, and for a percentage of longer term profits for a pre set period of time, after which the license expires or can be renewed, but based on new (and hopefully, mutually beneficial, terms).

    NOTE: I am NOT a lawyer and what follows is for informational purposes only. By reading further you take action on the following at your own risk.

    There are two halves to this kind of arrangement: the licensor (the person granting the right to use the licensable material), and the licensee (the person buying the rights) and the one forking over a percentage of their revenue in payment for the rights to use the aforementioned content.

    There are lots of questions with creative licensed content: will the content be rights-managed? (will the content be charged for once, for a set time period, after which the payment is due again). Will it be royalty-free? (paid for once, with certain restrictions on use and reproduction). Or will payment be based on commissioned elements and some form of continuing recompense?

    All these things need to be clearly defined and agreed on by both parties, the agreement needs to be in writing, and it needs to be shepherded through the process by a qualified legal representative.

    Here's a link to a site on which you'll find licensing agreements on which you might hang your own boilerplate:

    https://contracts.onecle.com/trw/northrop.lic.2003.02.28.shtml

    Here's another link that outlines some of what's involved:

    https://intellectual-property.lawyers.com/intellectual-property-licensing/L...

    Here's more on intellectual property contracts:

    https://agreements.realdealdocs.com/IP-Intellectual-Property-License-Assign...

    https://www.wipo.int/sme/en/ip_business/licensing/licensing.htm

    I hope this helps.





  • Posted by Mary Ellen Hickman on 3/1/2011 at 9:49 PM Author
    Gary, thank you for the information! I appreciate the detail here around licensing/royalties, which very much helps better define the situation.

    The problem I'm facing is that I am used to paying for design fees upfront (with a clear contract), and no licensing fees or royalties, and so I don't have any sort of frame of reference here. I'd like to be able to provide what's typical or accepted - anything to help with a starting point for a discussion (I will strongly recommend investing in good legal advice as well). Are licensing fees or royalties common in this type of situation, and if so, are there any specific ranges or typical percentages that any of you have seen? The designer has already been paid at his full hourly rate for all work performed.
  • Posted by SteveByrneMarketing on 3/1/2011 at 10:15 PM Member
    Re: "The owners thought that they owned all rights to all designs; it turns out that they don’t" indicates a lack of sophistication on the part of your team.

    To avoid making a bad situation worst, I would advise you to seek very good legal counsel. At best, you will be able to identify an expert witness on this forum and that is really the job of your lawyers.

    Steve

  • Posted by Mary Ellen Hickman on 3/1/2011 at 10:33 PM Author
    Steve, thank you for the response. The owners are very smart people, but did not have experience in this area when starting the business, and so missed this one. Any help with typical terms would be much appreciated - thanks!
  • Posted by Jay Hamilton-Roth on 3/2/2011 at 9:10 AM Accepted
    Review carefully the designer's contract. What was your company buying for their fee? Was this information oral, written, or not discussed. Given the value to your company of the designs, legal counsel is wise - it'll save you a future headache (not just this week's meeting).
  • Posted by Mary Ellen Hickman on 3/2/2011 at 11:58 AM Author
    Thanks Jay!
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