Royalties for consulting engineers 1

[glass99]

Does any of the consultants here use royalties with clients?

There have been some product based opportunities come across my desk over the years, one of which was quite large, and I have not known how to implement a royalty based contract. Do you need to monitor your client for sales?

 

[glass99]

the customer will insist they aren't doing anything with your work

This was something I was curious about in the real world. I kind of assumed you either need the ability to crack your clients head open if they cheat, or a good relationship so they don't. What kind of work did your dad do?

 

[IRstuff]

The other point is that it's statistically unlikely that you can be sufficiently accurate in projecting sales in the future to the point where you can break even, much less make money.

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[glass99]

The other point is that it's statistically unlikely that you can be sufficiently accurate in projecting sales in the future to the point where you can break even, much less make money

True, but it also both practical and fair to be paid a lump sum plus a royalty to cover the additional liability you are assuming as their production run expands. It is also possible that you hook up with a startup who is broke and unable to pay an initial fee and then the product gets big.

 

[SteynvW]

I once spoke to a guy that worked for a turnkey company, a municipality was losing lots of water through unidentified leaks throughout
the reticulation system. Instead of paying them to find the leaks, they took a percentage of the money saved from minimizing the leaks in the system. But this is in Africa, anything is possible.

 

[glass99]

they took a percentage of the money saved from minimizing the leaks in the system

I love that. I file all of this under "value based pricing". Do you know what the percentage was and whether they made money?

We actually have similar type situations come up a lot - for example, a contractor needing to rip out say a million dollars worth of glass based on a conservative structural silicone calculation. How much is our fee worth if we can prevent them from having to rip it out? If I only charge $500k, I still saved them a half million bucks which ain't half bad.

 

[TheTick]

My dad's business. Melt-blown fiber and film stretching technology.

http://www.biax-fiberfilm.com/

 

[glass99]

@TheTick - so your dad actually sold machinery it seems - what was the IP/royalty component?

 

[TheTick]

Since he patented and licensed the machines and collected royalties on product shipped.

Way too difficult to enforce. Everybody cheated.