EDIT: I didn't want to fiddle with the main post (though I'll happily go back and amend it if the mods would prefer), but this is a better direct link to the art in question. :)

Usually when I get somewhat vague emails like this I will politely write them back to get more details so that I can decide on a fair price. Things to consider:
What will the duration of the use be? One-time or long term?
What rights will they need? Often the word 'rights' is a little intimidating to folks so I will offer them suggestions... things like "If you need to purchase the image so that you alone will be able to use it for anything forever, this would be considerably more expensive than a single use for an event" and so on.
How will the image be used? Just on a banner / papers to advertise the event? (promotional use) Will they actually be selling things with the logo on it .. say t-shirts or mugs or whatever for profit or gain?

I have heard both that it's a good idea to ask what the budget is for this project, and that it's a bad idea to ask for the budget, by professionals across the board. Which is confusing, conflicting information... so generally I try to get a feel for things and decide if it 'feels' right to ask about budget before tossing numbers out or not.

Once you hear back from them then you can decide how much it is worth to you, depending on what kind of rights and usage they need. Obviously if they want full rights (only they can use it for anything forever), you need to carefully consider if you might ever have the chance to make money on the art any other way (maybe this isn't important to you, maybe it is) and factor that into the cost... whereas if they just wanted it as a one-time thing to promote their festival and the art remains yours then .. well.. how much would you want for that?

Just from personal experience: These types of things usually do not have big budgets (which is why they often have less then stellar logos done on low to no budgets, in other cases), but that said don't let a low budget guilt you into doing something where you are unhappy with the outcome, if that makes sense? If you sell them full rights for $5 and are kicking yourself about it for years then it's not worth it, is what I mean. Whatever you decide, be happy with it. :)

You could also ask for a % of sales. Just throwing that in there cause I didn't see it mentioned in the post above mine. Might be easier to figure out, as it all really depends on how much money they're going to make from it.

I suggest picking up a copy of this: The Graphic Design Guild's Handbook. It has a lot of info on image rights and even has examples of contracts in the back to use.

I'm actually surprised the person contacted you instead of just swiping it, to be honest. There are decent people left in the world, lol.

Also I'd ask them what 'local crafts festival', exactly. If it's one that's a recurring thing, you should be able to look up past info on it to get an idea for how they've advertised in previous years and what the whole thing's about. Just more info to help you decide on details, should you want to pursue this :}.

She is asking for logo rights which is kind of complicating because it is taking copyright and turning it into trademark. It would probably be better to speak to an IP lawyer but I would imagine nothing less than giving her all rights to the image would make sense.

"b) what a fair price range would be for the sale of rights to use said image."

There are no real good rule of thumbs to this. Some people would suggest a percentage of sales but unless it is a public company that publishes a quarterly report on revenue and expenses this isn't a good idea. Others preach the maximalist approach but it can be very frustrating for both the artist and the client as they try to screw each other over by spewing out random numbers and price tags without much justification.

Don't you mean 2.35%?

That is the percentage of sales approach. It doesn't work out because the client can lie, tell the artist that it is none of their business or, worse of all, ask you why you need to know that information. The best you can do is guess how much money the client makes but for all you know this could be a full time business with employees or just a side hobby. It is like licking and sticking your finger in the air and eye balling the sky to figure out next week's forecast.

First off, many thanks to everyone that's given advice and feedback thus far. I've read through all your comments and found the information offered to be very helpful!

That said, I put together a reply to the person and I figured that I would post it here for everyone to see:

"Hi X! I do apologize for the delay in replying to your email, but I needed to take a couple of days to think over your inquiry.
I do have a few questions regarding the use of the image that I am hoping to get details on from you, as I want to be absolutely sure that I understand what you're seeking from this:

- What will the duration of use of the image be? Are you intending this to be a one-time use, or were you thinking of something more long-term?
- What kind of image rights are you seeking with this? If you're looking to purchase the rights to the image so that you are the only person that can use it for anything, this will be considerably more expensive than a single use for an event.
- How will you be using the image? Will it be used on advertisement flyers or other promotional materials? Are you hoping to also use the image on profitable items, such as t-shirts?
- What is the name of the arts and crafts fair that you would be using the image for? I would like to know so that I can familiarize myself with the event that my image would be used with.

I hope to hear back from you soon, so that we can further discuss the possibility of licensing the image to you."

Fingers crossed I hear back now. :P