Cashing in on Art Licensing

Artist: Lynne Charles            Artwork: Tenacious       License This artwork

It can be frustrating for an artist when they sell a painting for $500 and then hear another has sold a piece for $10,000. How do you value one above another and how can you upscale your art licensing rates?

Art and art licensing are entirely different industries to any that we know. Many artists admit they have a hard time financially as they don’t know what to charge, turning down great opportunities for fear of making mistakes and charging too little.

Which option to choose? When it comes to art licensing, there are different ways to be compensated.

Licensing art means you retain all copyright to an image, and permit or “lease” the art for either a one-time use, such as an advertising campaign or for an extended period.

For more on art licensing sign up here for my FREE 6-day e-course: Beginners Guide to Art Licensing. FEAR THE LICENSE DEAL NO MORE: when you understand how these things work, you’ll have more confidence to deal better. Please, read on!

Methods of pay for art licensing:

ROYALTY: The manufacturer pays the artist a royalty percentage of their gross sales.

ROYALTY WITH ADVANCE UPFRONT: Sometimes there is an advance payable upfront, and later deducted from future fees. 

FLAT FEE: A one-time fee is paid instead of royalties.

So how much do you ask for? Here are a few guidelines:

ROYALTY PERCENTAGE PAYMENT: Royalty payments are based on the total (gross) revenues generated by the licensee (manufacturer) for your products.

Red Flag Warning: Never agree to a percentage based on the Licensee’s revenues minus their expenses as this is impossible to quantify

ROYALTY RATE EXAMPLE:  Let’s say you’ve agreed to license your art to X wholesaler for quilting fabric. They plan to sell the the quilting fabric to a chain of stores called Craft Connect. 

You’ve agreed a royalty of 6% with a $2,000 advance upfront. This means you get $3,000 upfront when the contract is signed, and be paid 6% of total gross revenues generated.

In their first quarter, X  wholesaler received $50,000 in revenues for Quilting fabric sales of your line to Craft Connect. So you will receive a royalty payment of $6,000 ($50,000 x 6% = $3,000) minus the advance of $3,000 upfront.

The advance is “recoupable against future royalties” so your first royalty payment is $3,000 minus the $2,000 advance. So you receive $1,000.

So how did you arrive at the 6%? Rates depend on many factors. The most important is the TYPE of product, QUANTITIES expected to be sold and the artists/brands POPULARITY.

Product Type: The average rate varies from product to product, but is a good starting point to determine what to charge. You can learn more from online forums where artists experienced in licensing can give you an average royalty rate for a particular product.

Quantities: The higher the volume, the lower the royalty: If mass market retailers sell products in mass quantities, the royalty rate will be less as those retailers demand better prices, meaning tighter profit margins for manufacturers.

An artist will earn more money from a lower rate when products are sold en masse than they would with a higher royalty rate for products being sold in small shops.

The lower the volume, the higher the royalty:  If products are sold in specialty stores and smaller quantities, the rate should be higher. For example, a manufacturer selling in mass-market chains may pay 4-6% royalties compared to 6-10% for those selling in smaller shops.

Popularity: If the artist is well known and their art is a proven seller, royalty rates will be higher, while an unknown or new artist can expect lower rates.

In some cases, a licensee that works with artists will regularly have a standard royalty to offer. At that time, you can decide if you want to accept their offer, or negotiate for more.

FLAT FEE PAYMENT: This is a lump sum paid upfront when the contract is signed. No royalties are paid later. Flat fees may be calculated by image (i.e. $500 per image x 10 images = $5,000); or paid in one specified sum (i.e. $2,500 total).

Flat fees are best when the licensee is either a small company that does low volume, or is a start-up company that does not have a track record of sales. The drawback is that if the product sells above expectation you may miss out on bigger revenues.

So negotiate a short term (one year or 18 months) deal. If sales are very good, the licensee will want to renew. At which time you’ll be paid again, or you can negotiate a better deal.

How much of a flat fee? Some artists charge as little as $100 per image, while an artist in the greeting card industry might charge a flat fee of $275–$500 for a design. I’ve had deals where I’ve charged a flat fee of $1,500 per image, with a price break if they license multiple images.

The flat fee amount depends on: brand strength, competition in the industry and what the licensee is willing to pay. Importantly, you get paid what you think your art is worth.

ADVANCES:  Paid upfront when an artist signs a contract, an advance is usually non-refundable and deducted from future royalties. So they get paid now compared to waiting a long period before royalties appear.

An advance is an insurance policy: those willing to pay an advance are more committed to the success of product sales. And it means you get something out of the deal if something goes wrong – if products don’t make it to market, are dropped, or the businesses go bust.