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Business Terms
Royalty
Definition
A payment made for ongoing use of intellectual property, typically as a percentage of sales.
Overview
Royalties compensate IP owners when others use their work commercially. They're common for patents, music, books, and licensed designs.
Example
A product designer receives 5% royalties on sales of products using their patented design.
Best Practices
Negotiate royalty rates based on value contributed. Define calculation and payment terms clearly.
Common Mistakes to Avoid
Unclear calculation method
Not auditing sales
Below-market rates
Frequently Asked Questions
How are royalty rates determined?
Negotiated based on value, industry norms, exclusivity, and bargaining power. Typically 1-15%.