Edward Cooper wrote:

> I'm doing a consumer audio appliance project, the concept, design, and
> protos will be supplied by me, I'm looking around for organisations that
> are want to brand and take on this product, there will be significant
> costs involved in customising the product for their requirements, and
> probably an exclusivity agreement. 
> 
> Now they want to pay me in royalties, with nothing up-front, is this a
> bad idea? I'll find it tough affordng it. What rate should I be asking
> for considering this product will sell in the shops for $250-300 or so?
> Should I ask for a up front amount, or should I bill them for my time?
> Should I subtract this from the royalties. 
> 
> I think this is a fantastic product and I hope it does well, but, I'm
> not willing to 'give it away' 
> 
> Any ideas would be helpful - I'm a tad clueless :) 

One approach is to see this as a two-level process. Every individual sales
process is determined by the relationship between cost of item, achievable
sales price, quantities and an expectation for the future. 

This happens both between your customers and the consumer, and between you
and your customers. How much you can get from a customer is in part
determined by their vision of what they can get; they won't be inclined to
pay you more than they think they can make. And how much you can get in
general is in part determined by how big your market is (not necessarily
theirs) -- if you have more companies wanting your product, you're better
off than if you have more product than companies :)  If you have only one
customer, you don't have much choice: take what you can get from that one,
or leave it. 

I think with consumer items, there is not really something like a
rule-of-thumb percentage. It seems to be mostly a question of marketing and
how good you can make the deal. (There's probably some kind of
distribution, but I'm not sure how relevant that is for any individual
case. You may have an item at the lower end of the scale, and with a deal
at the lower end you may still be getting a very good deal. Or the other
way 'round... All this only starts to make sense when you get into numbers
where averages start to make sense. That means /many/ designs.) 

Whether they will pay you up front for customization probably depends a lot
on how eager they are to sell that device. In general, there is always a
possibility to trade higher profit later against higher security of getting
paid now. It's partly up to you to decide. In general, I think royalty
payments are a bit of a problem. You need to have a good level of trust, or
enough money to hire someone to audit their books :)

Probably the only way to find out how your market looks like is to find a
few companies that might be willing to take it on, and compare their offers
and their "flexibility". 

Gerhard

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