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Royalty Rate Determination and Allocation

Of the various terms that are negotiated in license agreement, royalty rates and minimum guarantees are the terms that will have the greatest impact on your bottom line. The same is true whether you are the licensor or licensee.

CONSOR will act as your advocate in negotiations to arrive at royalty rates and minimum guarantees that are most beneficial to you, while remaining true to competitive market forces and relative strength positions. CONSOR has negotiated and/or analyzed thousands of license agreements, which has put us in the position to quickly recognize opportunities and pitfalls within the financial structuring of license agreements.

For example, a three-year term guarantee of $300,000 appears on its face to be the same financial commitment as a three-year, $100,000 annual guarantee. However, in this instance the annual guarantee commitment could result in $200,000 of additional royalty payment over the term guarantee for the same three year period.

Some services we provide in establishing royalty rates and minimum guarantees are:

  • Structuring of minimum guarantees to avoid financial pitfalls
  • Structuring of royalty rates to achieve discounts and improve profitability
  • Royalty studies of current fair market royalty rates for product classes
  • Royalty studies of current fair market royalty rates for industries
  • Studies of marketplace minimum guarantees for products and industries

Royalty Allocation

In the current market where joint ventures and co-branding are pervasive, there often needs to be a fair allocation of royalty between two parties. In some cases, royalty revenue or payments need to be allocated between subsidiaries or departments of the same company. When there are two or more contributing elements to a royalty bearing product, it is a rare occurrence when all elements are contributing equally to the brand value of the product.

CONSOR’s extensive experience in these areas allows it to act as a well trust third-party that can determine the fair market value contributed by each royalty bearing element of a product or service. Having worked in joint ventures co-branding, and cooperative marketing circumstances, we have developed methods to calculate the contributing value of brand elements in traditional licensing negotiations, co-branding agreements, intercompany transactions, and transfer pricing.