5% is the Most Common Royalty Rate
Royalty Rates for Technology – 7th Edition
This seventh edition of Royalty Rates for Technology contains more information about technology pricing than any other publication. This book represents over a two decades of research. Included in this new book is information about technology royalty rates, license fees and milestone payments. Also reported is information about infringement damage awards and settlements. All of the information in the book is provided to show different types of value indications for various technologies in different industries.
|Aeronautics & Defense
Electrical & Energy
Food & Beverage
Fuel – renewable
As you review the information contained in this book it will become apparent that the most frequently negotiated royalty term is 5% of sales. Especially interesting is that the 5% royalty rate is found across a diverse number of industries including automotive, chemical, communications, computers, defense, energy, electronics, food, franchises, glass, household products, mechanical, medical, photography, sports, toys and waste treatment. It’s everywhere. Examples include:
- In electronics, Exeo Entertainment, Inc. entered into a license agreement with Psyko Audio Labs, whereby Exeo will manufacture and market the Psyko Krypton and Carbon line of gaming headphones. Exeo will owe a 5% royalty on all headphone sales to Psyko Audio Labs
- In the sports industry, Easy Golf Corp. manufactures, and sells a proprietary golf improvement product known as “The Swing-Channel™ Golf Mat”. Easy Golf pays the inventor 5% of sales.
- In the medical industry, Baush & Lomb entered into an exclusive worldwide license agreement to develop, manufacture and market a cast-molded multi-focal soft contact lens using Unilens’ patented multi-focal soft contact lens design. Bausch & Lomb pays Unilens a royalty ranging from 3% to 5% of the product’s worldwide sales.
- In automotive, Research Frontiers Inc. licenses Glaverbel SA the rights to manufacture and sell self-dimmable automotive vehicle rear-view mirrors. Glaverbel’s pays Research Frontiers 5% of sales.
- In communications, TechAlt, Inc. produces a secure wireless communications toolset to be used by emergency first responders for interagency interoperability, communication and collaboration. TechAlt pays a royalty of 5% of sales for the underlying technology.
Distribution of Royalty Rates
The overall range of royalty rates goes from 0.50% to 50% of sales but 5% is the dominant rate. Consider that 64% of all licensing deals use a royalty rate of 5% or less. A cumulative analysis of the data in our new book shows the following:
20% of royalty rates are 2% or less,
35% of royalty rates are 3% or less,
42% of royalty rates are 4% or less,
64% of royalty rates are 5% or less,
69% of royalty rates are 6% or less,
74% of royalty rates are 7% or less,
78% of royalty rates are 8% or less,
79% of royalty rates are 9% or less,
89% of royalty rates are 10% or less, and
93% of royalty rates are 15% or less
While royalty rates above 15% exist, they are rare and usually associated with extraordinarily profitable technologies such as those in the gaming and entertainment industry. For the most part, licensing deals use royalty rates in the single digits.
Specific details about the royalty rates common for your industry can be found in our new book – Royalty Rates for Technology, 7th Edition.