The key to building a sustainable surface design business is to have a wide assortment of clients who are paying you regularly enough that you’ll eventually earn a decent artist salary over the course of the year.
When I say “regular payments,” I think many artists assume I’m just talking about royalties. However, I’ve found it much easier to earn a steady income over the course of my career by being open to other payment possibilities too, like flat-fee licensing, freelance surface design projects, or even buyouts where I sell designs outright to a company.
Still, royalties are often seen as the “gold standard” in artist licensing.
And I totally understand why. I mean who wouldn’t want to see monthly or quarterly checks arrive in the mail?!? For example, I received almost $7,500 in royalties in 2021 alone and that averages out to over $600 per month. Not bad considering the design work for those payments was done 1–4 years ago.
But I also see some misconceptions among artists, so I’d like to take a few minutes to discuss art licensing royalties to give you a better understanding of how they work and most importantly, how to ensure you get paid well.
What are royalties?
When you license your surface pattern designs or illustrations to a company, you’re giving them permission to use your art on products that they’ll manufacture and sell, and in return, they’ll compensate you for being able to use your art.
The compensation could either be a one-time flat-fee payment or royalties. If it’s royalties, you’ll receive a percentage of the price for each product sold. They are sent to you in regular payments, usually monthly or quarterly, for a specific period of time (the exact duration should be included in your licensing contract).
What’s the average percentage for art licensing royalties?
The royalty percentage you’ll receive from a company varies widely because the amount is based on a number of factors unique to each client. In my experience though, you’ll most likely earn between 3–10%. But I’ve also seen royalties rates as low as 1.5% and as high as 25%. And this illustrates the biggest mistake I see surface designers make:
Thinking that the percentage is the ONLY thing that matters and you can know whether a royalty deal is good or not by the % alone.
But that is completely FALSE. You can never tell by just the percentage whether a royalty license will be good or bad and it’s because you simply don’t have enough information.
Related Article: Streams of Income & How Artists Get It Wrong
What information do you need to calculate your potential royalties?
The truth is there’s actually three different things you need to know in order to calculate your royalties properly. Let’s walk through each one…
1. Royalty Percentage
The % you’ll receive is the first number you need for any art licensing deal and luckily it’s almost always offered up by the client. One thing to keep in mind though is if the licensing agreement is for an assortment of products (like rolled gift wrap, greeting cards, and gift bags for example), you’ll need to know what the royalty % is for each product, as products could have different percentages.
2. Product Price
The second number you’ll need is the price the product will be sold at, and again, if there are multiple products, you’ll need the prices/price range of each. In most instances, a royalty is based on the wholesale price, which is the price a company sells its goods to retailers for.
However, there could be rare instances where the royalty is based on the retail price of a product — it’s important for the client to specify what price the royalty is based on and it should also be included in the licensing contract. On that note, companies don’t typically share their product prices upfront, so you’ll have to ask them.
And the reason this number is so important is that the product price impacts the amount you earn on each individual product.
For example, let’s say you’ve been offered a 3% royalty from two different clients. Client A is a stationery brand that sells greeting cards at a wholesale price of $1.00, which means you’d earn 3 cents for each card sold (because 3% of $1 is $0.03).
Then there’s client B, a luxury kitchen brand that sells tea towels at a wholesale price of $24. With that price, you’d earn 72 cents for each tea towel sold (3% of $24 is $0.72). So between those two offers, there’s a difference of 69 cents you’ll earn and it’s because the product price is different.
Reading this, you might be thinking that the no-brainer option is to go with client B because earning 72 cents per product is a lot better than 3 cents. But we still need another number before you can know for certain which offer is better.
3. Number of Goods Sold
The last component that’s crucial to know is the number of products they expect to sell over the duration of the license (or during a 1-year period if that’s easier for them to share). And just like product price, you’ll most likely have to ask for this information.
Now obviously art directors aren’t wizards who have the ability to see into the future and know the exact volume of products that will be sold, but they should at least be able to give you an approximation. If you get resistance when you ask about the number of goods, you can always ask for past sales figures on similar products instead.
Knowing the number of goods they expect to sell is vital because it significantly influences the total amount you’ll earn in royalties.
Let’s revisit the previous example with the two clients. Client A sells its greeting cards to several big-box retailers, which means they produce a high volume of greeting cards and typically sell between 25,000–30,000 cards per design. On the other hand, client B focuses on quality over quantity and they generally produce 500 towels per design.
So how do you calculate your potential royalty earnings?
Once you have all 3 numbers from a client, it’s easy! You just need to multiply them together to calculate your potential earnings. If you don’t want to do the math on your own, I have a simple Royalty Deals worksheet that includes an actual royalties calculator — you’ll find the worksheet inside our free resource library.
But let’s use the two mock clients as an example here to illustrate things:
Client A: Greeting Cards
- Royalty: 3%
- Price: $1.00
- # of Goods: 25,000–30,000
= 0.03 × 1 × 25,000 (& again w/ 30k)
Potential Royalties: $750–900
Client B: Luxury Tea Towels
- Royalty: 3%
- Price: $24.00
- # of Goods: 500
= 0.03 × 24 × 500
Potential Royalties: $360
Looking at these two licensing opportunities, it’s now clear that the greeting card royalty deal is the better of the two.
If I was dealing with both of these clients, I would be happy to accept the greeting card deal as long as the remaining contract terms were good. However, I’d probably ask client B if they could increase the royalty percentage to at least 6% and/or significantly decrease the territory or duration of the license, as those two contract terms play a vital role in impacting the licensing fee.
How accurate are the royalty estimates compared to how much you’ll earn?
Because no one can predict the future, it’s impossible to predict whether the royalty amount you calculate will be what you actually earn over the course of the license. Sometimes you’ll earn less than estimated and sometimes more. The good news is that the more royalty deals you make, the better you’ll get at deciding whether an artist licensing royalty deal is right for you or not.
The big takeaway here is to always get the information you need from each client before you say yes because without knowing these 3 numbers, you could end up signing a royalty license agreement that only pays you a few bucks.
Still, I know as artists, most of us don’t feel comfortable pricing our artwork or negotiating better deals (including asking for higher royalty percentages) — it’s taken me 6 years, negotiating 50+ contracts by myself to learn the ins and outs of pricing for art licensing and surface design clients.
It’s why I created my Artful Pricing & Negotiation course to help you learn pricing and contract basics in a way that won’t make you fall asleep or want to rip your hair out. Inside I show you not only how to fairly price your art for buyouts, licensing, and freelance projects, but also how to read contracts and negotiate better terms for yourself. If you’re interested, click here to learn more.