Tuesday, June 28, 2011
The average royalty rate for art licensing is six to seven percent. Although, royalties can be as low as two to three percent for products placed into the mass market and up to 12 percent in specialty stores by well known artists. Note: Not all art licensing deals generate income from royalties. Read "Licensing Art - There is no such thing as a typical deal" for a discussion on other types of art licensing revenues.
Royalty rates are dependent upon many factors such as the type of product, what type of retail store the product is sold (i.e. specialty, mass market, discount, etc.), whether advances toward royalties are offered, or if the artist is well known and the art is sought after by the consumer. Ultimately the percent royalties offered by the manufacturer is dependent on a profitable gross margin (difference of cost to produce product or cost at wholesale, and income from sale of product). In other words, if there is a big enough margin between the cost in producing the product and the net sale price then a higher royalty percent may be offered to the licensor.
Royalty Rates Publications
Licensing contracts are confidential and the reason why the royalty rates of individual manufacturers are not shared on the internet. However, there are several publications (see below) that conduct royalty surveys and publish yearly reports that show a range of royalties for specific product categories. But these publications are pricey and not affordable for many artists. Note: Because of the varying factors from industry to industry and manufacturer to manufacturer, there is not one set royalty rate per product category and therefore publications show a range of rates. Many product categories for art have a range of four to eight percent.
• "Graphic Artist's Guild Handbook of Pricing and Ethical Guidelines" 13th Edition (published by Graphic Artist Guild) Cost $39.99. ($22.35 at Amazon.com) The handbook includes SOME pricing and royalty rates.
• "The Licensing Letter Royalty Trends Report" (published by EPM Communications, Inc.) Cost $319. The report includes charts and tables of royalty rates per product categories for different licensing segments. You can download a pdf file of sample pages from the website.
• "Licensing Royalty Rates, 2011 Edition" by Gregory J Battersby, Charles W Grimes (Aspen Publishers) Cost $425. The book includes tables of royalty rates per product categories for different licensing segments. Click here to see several pages from the 2010 edition.
Reasons for Accepting Low Royalties
The answer to many questions in the licensing industry is "it depends." And that is also the case in signing a contract with a low royalty rate. Each artist has a different reason for licensing their art to manufacturers and it not necessarily to make money on EVERY contract. Below are some reasons why licensors may accept a low royalty percent.
• Large royalty is not always the most profitable
At first glance, you would think that licensing art to manufacturers that give high royalties would be the most profitable. But that is not always the case. Many times a lower royalty from manufacturers that have a high product distribution is better than manufacturers with a higher royalty and lower distribution. Art consultant Joanne Fink (now artist and product consultant) gave an excellent example of this during the "Creative Marketing Strategies for Art Licensors" seminar* of the Craft & Hobby 2008 Winter Convention and Trade Show. She recounted an example of a manufacturer that licensed art for their rugs at 6% royalties to specialty stores and different art to the mass market (big box stores) for 3% royalties. The artists that had their art on product in specialty stores received $3000 in royalties while the ones that had their art in big box stores received $20,000 in royalties. Now that is a huge difference. Note: The example that Joanne described happened during the heyday of art licensing. Retail sales and art licensing has declined during the last several years so it is harder to get licensing contracts with big box stores. Also these stores are doing more private label branding and purchasing art outright or using art designed in-house instead of licensing.
* An audio CD of this seminar can be purchased from Craft & Hobby Association for $16 plus shipping and handling. On it Joanne Fink shares excellent information about the art licensing industry and marketing art. Click on the topics tab to view all the 2008 seminars. "Creative Marketing Strategies for Art Licensors" is seminar number S102.
• Build art / brand awareness
As a licensor new to licensing, an artist may wish to build awareness of her / his art by getting contracts with key manufacturers. Thus, they may be willing to accept a low royalty percent with the understanding that if it does well she / he will negotiate a higher royalty when the contract is renewed.
Also a licensor may be willing to accept low royalties if the manufacturer is willing to help build the licensors brand by advertising in various medias, arrange artist signings, interviews, etc.
• License to a particular manufacturer
A licensor wants to license her / his art to a certain manufacturer because they like the quality of the products, think that the art is a perfect fit, and think the art will be successful. The licensor is willing to take a low royalty to test the market and will negotiate a higher royalty when the contract is renewed.
Consider all the ramifications before accepting or rejecting a licensing contract based on the royalty percent offered by the manufacturer. A high percent royalty is not necessarily profitable. A low royalty percent may payoff over the long haul if the reason for accepting it match the artist licensing goals.
Read the comments to this article. Agent Lance Klass of Porterfield's Fine Art Licensing shared important information about royalty rates, low royalties when stores have high sales volume, and advances toward royalties.
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