Invention royalty rates
Few companies publish a rate. Mattel’s idea portal offers up to 1.5% of its sales and Lego Ideas pays 1% of net sales, both for ideas from anyone. A negotiated license with a working product is a separate deal, and the rate is only one of its terms.
Published terms
“If offered and agreed to, such Royalty Agreement would provide, among other things, for Mattel to pay You a royalty (in the manner described in Section 5(C)) of up to 1.5% of Mattel’s sales of the royalty earning products that use Your Product provided that all of the following conditions are satisfied: (1) Mattel intentionally incorporated Your Product into a Mattel product; (2) Your Product is actually novel…”
“Users that have their projects produced receive ten copies of the final set, as well as a 1% royalty of the product's net sales and credit and bio in set materials as the Lego Ideas set creator. [ 3 ] [ 19 ]”
Stonemaier, a board game publisher, states an advance:
“In return for your commitment to excellence, we offer a $10,000 advance on royalties whenever we sign a new game.”
OXO’s president says most of what it sells carries a royalty:
“"Most products we sell we pay royalties on, actually, whether it's to a design firm or an inventor."”
There is no public benchmark for negotiated rates. Brokers publish ranges, and they are selling the service. Ask inventors in your category what they were actually paid.
What it is calculated on
Usually net sales: the company’s invoiced price, less returns and allowances. Read that definition closely. Deductions for marketing, freight or “administrative costs” quietly cut your rate. Ask to limit them to returns and actual trade discounts, and to cap them. Never accept a share of profit, which accounting can make disappear.
Run your numbers
Assumes the company sells to stores at half of retail. These are your inputs, not a forecast.
The terms that matter more
- Minimum annual guarantee. A floor paid whatever sells, which stops a company from shelving your product.
- Performance clause. Launch by a date and hit the minimum, or the rights return to you.
- Reports and audit. Regular statements and the right to check the books.
- Term and territory. Limited to where the company actually sells, renewable on performance.
- Improvements. Who owns them, so the company cannot improve its way out of paying you.
- Sublicensing. Your share of what it receives.
- Advance. Paid ahead and credited against royalties. Weigh a large one against a weak minimum.
Have a licensing attorney review the final agreement.