Beginner’s Ultimate Guide to Royalty Rates Services
Royalties are referred to as the amount of money or payment made to a licensor by a licensee in exchange for the right to operate under a patent of idea. When it comes to licensing a patent or idea, one of the crucial steps is establishing a royalty rate or the amount of money you need to be paid for you to grant the right or license to manufacture and sell your invention. Allow us to help you get a clear idea how to calculate the right royalty rates, and discuss the factors affecting royalty rates. Royalty rates are affected by exclusivity, upfront sum, industry standard royalty rates, company standard rates, intellectual property stage, market potential, licensing to an infringer, related intellectual property included, testing and certification, and investment required.
How do franchisors establish their royalty rates? There are many ways how a franchisor establish their royalty rates such as the gross sales that the franchisee will earn, ranging from five to none percent. Gross sales refer to the total amount of sales made by the franchisee without any discounts or reduction applied to family members, employees, allowances, adjustments, returns, or taxes. While there are some franchisors basing their royalty rates on their competitors, it should be dealt carefully because the success of a franchisor greatly depends on the royalty rates.
When it comes to the different approaches to royalty rate assessment of an intellectual property, the approaches used are cost approach, the comparable market approach, and the income approach. It is important to consider the research and development, patent application cost, pilot-plant, technology upgrading, and test-marketing under the cost approach. In terms of the success rate, the licensee pays a higher royalty rate for the product as in moves through the following stages: pre-clinical success (in vitro, 0-5 % royalty rate), phase I or safety (100 healthy people, 5-10%), phase II or efficacy (300 subjects, 8-15%), phase III or effectiveness (several thousands of patients, 10-20%), and launched product (regulatory body approval, 20% and above). When it comes to comparable market approach, the cost and risk of development are not taken into account, and the royalty rates are based on similar technologies or industry application. In order to get the appropriate share of the profit generated, the income approach focuses on the estimated profits of the licensor as generated by the licensee.
Are you having issues determining the right royalty rate for your invention? You may come and check our homepage or website to get to know more how royalty rates services work. It is time to be accurate on your royalty rate.