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A friend and I are starting a business making and selling pinback buttons. There are going to be two halves to the business - a printing service, and an online store (which might also sell at conventions). The two aren’t connected, so an artist who only uses the printing service wouldn’t be mentioned in the store. The store is the part we need advice about. We want to carry a large variety of button designs, and to do that, we need to know a fair way to buy or pay royalties for the art.

The rights we’d need are to print and sell buttons, and use photos of the finished buttons in our online store and marketing. The artists would keep the rights to do anything they want with the pictures themselves, including selling their own buttons.

Paying royalties looks like the best option, so far. That way, the artists would get some passive income from their art without having to do any selling/marketing themselves, and our incentives would be more in-line with the artists’. It would also avoid situations where we end up selling more than we and the artist expected when the deal was agreed on, or sell less than expected and lose money.

How large a royalty would be fair for something like this? Buttons usually sell for about $1 - $1.50. My gut feeling is somewhere around 20% of the sale price, but I’m not sure if that’s right. (We’ll be making the buttons ourselves, and we expect to spend a lot of time packing and shipping, since each individual order doesn’t cost a lot.) If we want something made custom, rather than just paying for the right to use the artist’s existing work, I assume we’d also pay their regular commission price up front.

Paying royalties also introduces some other complications. PayPal charges a flat fee for sending payments; would it be okay to pay monthly and/or wait until we owe the artist at least $5 or so before paying, so that we don’t have to pay the fee as often? (DeviantArt does something like this when paying artists for prints, and I’ve seen people criticize it.) If we stopped carrying designs that didn’t sell very well (and paid the royalties on the few copies that did sell), would that be unfair to the artists?

The other option would be to buy commissions that include the rights to print and sell the work - so we’d be paying up-front only. Is this considered fair? How much extra should we expect to pay for the usage rights, if anything? Would there be other complications with this approach, like having to do limited print runs?

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( 17 comments — Leave a comment )
gatekat
Oct. 5th, 2014 11:55 pm (UTC)
I agree with 20% gut feeling, though mine is no better informed. Different artists may have their own expectations too.

You wouldn't be paying the fees, the recipient does, unless you're sending it as a gift. But I do agree on setting up a 'we pay you every X you earn' and I don't expect many artists would have issue with it.

I don't think it's unfair to drop items that don't sell, but as a potential customer, I would ask: what do you have to lose by leaving them up? It's not as if you'll have stock sitting around.

If you buy the rights, expect to pay a lot for it. Anywhere from an extra 50% of the commission price to a flat fee running in the hundreds. It's very much a case by case according to the artist.

Though given what you want to do, you don't want full rights, which is what is usually sold. You only want joint rights to publish, but you don't care if the artist also publishes, correct?

As for criticism, there will be people who criticize no matter what.
nightmareart
Oct. 6th, 2014 12:14 am (UTC)
Thanks for the feedback!

At this point, we're not sure whether we'll be keeping stock around or not. It's looking like maintaining a small stock might be more efficient, but we'll only find out for sure when we try it. I just wanted to know whether the option would be available, if we did find that maintaining the less popular designs was difficult.

I'd suspected buying rights would be difficult like that. It's correct that the artist could also publish; we'd be asking for non-exclusive publishing rights.
starcharmer
Oct. 6th, 2014 09:23 am (UTC)
I can't really weigh in on your main question, but if I were you guys, I'd probably keep a stock handy of the most popular buttons and make less popular ones on demand. :) After a couple months you should have a pretty good idea which ones are going to sell the best.
eski
Oct. 6th, 2014 12:06 am (UTC)
You might look into licensing fees rather than royalties. That way you can pay an artist a flat fee, and don't have to worry about paying such tiny amounts over time. And the artist gets a small chunk of change up front. Then if you want custom art, you can pay their normal commission rate plus an agreed upon licensing fee for the use of that art.

I've done licensing on small scales for some of my existing art before, it's a nice alternative to royalties! I personally might charge between 15% and 35% of an estimated commission fee for something like this project, as an artist.

My last note would be to make sure when purchasing rights to use an image, you get it all in writing. That way if a problem arises you can go back to your written agreement with the artist. It's also nice and clear for everyone involved as well. =)

[edit] I'd also like to add in comparison, what I would charge for a FULL rights transfer of any given piece of art. So you have an idea of the difference between a full rights transfer and a licensing agreement. Full rights for me go for between 85% to 100% of an estimated commission fee. That means they can do anything they want with the art, including reselling the rights. Whereas with a licensing agreement, you only get permission to do certain things with the art (here, button production) and you don't get to resell the rights.

Edited at 2014-10-06 12:09 am (UTC)
nightmareart
Oct. 7th, 2014 02:03 am (UTC)
That's less expensive than we'd thought it would be; maybe we will look into buying rights up-front. Thanks for your input!
sheepilyy
Oct. 6th, 2014 01:38 am (UTC)
This is just my personal opinion based on nothing else.
If someone approached me about this, this is how I would handle it.
+I would agree on the amount of buttons that would be printed
+I would agree on a percentage (like 5%, or 20% after printing cost) and ask for that money up front based on on the amount of buttons you wanted to produce.

I feel that way if it sells really well you can come back and we can renegotiate the contract for more buttons once the stock is out. If they don't sell well, I guess it would be your loss on that one ;w; So I might start with smaller amounts if you do this.

Edited at 2014-10-06 01:39 am (UTC)
nightmareart
Oct. 7th, 2014 02:04 am (UTC)
Thanks for the idea! :)
poto_heart
Oct. 6th, 2014 02:33 am (UTC)
You will want to work out whether you want that to be 20% gross or 20% net. 20% gross is in fact very generous IME. (Gross would be 20% of sales before you deduct any other expenses.)

It's standard to provide at least some advance - i.e. an upfront payment that is an advance on royalties from sales you make later. Yes, this means if you don't sell, you're the one in the hole. If you're commissioning the item then I would pay the commission price as a one-time fee rather than an advance.

You'll also want to consider things like exclusivity rights (can the artist also sell the same design to another button printer, or for use on a different product?). You should also be aware that you should be prepared to show your sales records to an artist so they can audit them if they think you might be shorting them.

As for when to pay, I would ask the artists you work with. They are the ones paying the fee, so it would probably be best to let them give input on it.

TBH there are a lot of websites out there describing industry standards, my recommendation would be to look at a lot of sources and see if you can get in touch with a lawyer when you're ready to do up a contract, for both your and the artists' best interests. Don't be afraid to break away from some industry standards though, for example I don't think the 20% payout is a bad idea, I personally charge below standard for the graphic design work I do because I work with independent, self-publishing authors that don't have the kind of budget that industry standard prices and practices demand. But make sure you know if you are outside of the standard, and are doing it deliberately.
nightmareart
Oct. 7th, 2014 02:05 am (UTC)
This makes sense; I figure it's fair for us to be in the hole rather than the artist if it doesn't sell, since they're putting more time in up-front than we are.

I hadn't realized that the fee would be on the artist's end. Good to know.

I'll try to find those industry standards websites - I hadn't realized that information would be easily accessible. Thanks!
poto_heart
Oct. 9th, 2014 03:21 am (UTC)
The websites you're going to be looking for are more geared towards artists, who are usually the ones who have to be concerned about making sure contracts protect them properly and that they're getting paid fairly etc. But the information is out there. Some of those forums might have a place for you to ask similar questions on and get answers from multiple professional artists who have done similar work.

There's also guild handbooks (example) which pretty much exclusively describe industry standards, what a fair contract looks like, etc. however they are made for artists and they do cost money to purchase. I'm not sure whether or not they'd be a sound investment for you as a business who's going to be (hopefully!) working with a lot of graphic artists.

Anyways, good luck! I hope you have fun and sell many buttons :3
sableantelope
Oct. 6th, 2014 10:58 pm (UTC)
Oh man...if you plan to buy the rights to more than ten pieces I'd say arrange a half hour meeting with a lawyer.
I know that'd be a tad expensive, but less expensive than issues down the road. You do plan this to be a continuing business, not like a one time shot of buttons of your character for fun or anything.

Get your biz registered and stuff so that you have a name to use with the artists you approach, so many times popular artist get approached with skivvy deals, so saying your name is X representing AwesomeButtonCompany, Unltd. should help you get more replies.

Do some work before you go so you spend the max time on what the lawyer needs to help you with and aren't paying for stuff you could have done on your own.
Using the advice posted here, and some research of your own do up a basic contract for the rights.
Then you can show the lawyer your contract for the rights you plan on using, they'll make sure it's legally fair to you and the artist and avoid issues down the road.
I'm assuming you'd be commissioning based on art you think that'd sell, not based on people in you country, so maybe some advice on working internationally and the complications that can come from that.

You're working online so look up the scan/sign/scan method or, if he is knowledgable in it, get the lawyer to buzz through it with you. (basically involves signing and scanning your contract and emailing it back and forth a couple times, with a hard copy of the contract signed by both parties snail-mailed by the party who initiated the deal.)
Because you want a good paper footprint for your business, and for filing your business taxes down the road you wont want to rely on just email agreements about something as important as commercial rights for artwork(even if you aren't making millions, it's still important. If you end up being limited not unlimited it can be a major deal for your personal credit and taxes down the road)


ALSO GET A PARTNERSHIP AGREEMENT WITH YOUR FRIEND. Get the lawyer to review the partnership agreement.
This handles not just how things divide on business dissolution, but also if one of you suddenly dies, or if things end up going way better than expected and you have to expand. Etc. Even if you'll only be handling X and friend will only be handling Y. Get the agreement.
If both of you are running the business don't try and weasel into a sole proprietor by listing one of you as owner and one of you as employee unless that is legit how you plan to run things. If you're going to be partners set it up that way. And get a partnership agreement done. Seriously I could cut and paste that a thousand times and it would not be enough. I don't care if you two are best friends evah, they gave you a kidney, live in the same house and willing to share undies kind of friends. Get. a. partnership. agreement. Make sure it is legal and covers everything you might not even know you need to cover.
Especially if you end up incorporating as limited. Even if you don't. Even if one of you is secretly an immortal god of honesty, get a partnership agreement. Even if one of you is a Harvard law professor. Get a partnership agreement.

Good luck with everything! Do a tonne of a research and meet with a lawyer once things firm up to get some hard and fast advice(and to look over that partnership agreement *coughgetapartnershipagreementcough* Oh excuse me I must be coming down with omggetapartnershipagreementholyhellIcan'tstressthisenoughitalwaysendsuglywithoutone-itis)



nightmareart
Oct. 7th, 2014 02:02 am (UTC)
Got it, will do!

We've already started looking into the partnership agreement. (I'm in IT, so I've already had it drilled into me somewhat how this sort of thing often goes wrong for startup founders.) We're still trying to drill down the details of what will be [i]in[/i] that agreement, but there will definitely be one.

I hadn't thought about talking to a lawyer about working with artists in other countries, but that's a really good point that we hadn't thought of, so we'll do that. Taxes are going to be "fun" too... But yeah, we're trying our best to do this properly.

It's interesting that being able to say you're representing a company makes you seem so much more credible; I would've thought that artists would be just as wary of skeevy companies as skeevy people. Interesting.
intj_reflection
Oct. 7th, 2014 06:50 pm (UTC)
I'm not sure that representing a company, in general, makes you seem more credible. My interpretation was that being able to represent a legally licensed company would.

A company with owners that have taken the time to obtain the federal and state licensing and permitting necessary to operate within the bounds of the law is already leaps and bounds over one that is just a name on a webpage. (Not that that is always a guarantee of honesty or potential success...)
nightmareart
Oct. 8th, 2014 05:17 pm (UTC)
I see; this makes sense.
intj_reflection
Oct. 7th, 2014 06:57 pm (UTC)
It looks like your questions have already been pretty well answered, I'll go into one that hasn't been addressed. If you go the royalty route instead of the licensing fee direction, it is not uncommon for royalty checks to be cut quarterly instead of monthly.

When I worked for a small independent publisher royalties were paid as follows: Quarterly sales paid the month after the quarter ended, if royalties had accrued X number of dollars. At the end of the fiscal year, any unpaid royalties were paid in full even if they had not reached the quarterly accrual value.

If artists are like authors, be wary of detailed queries about royalties. There is always an assumption that anything offered online is selling more than it actually is. I would field calls every quarter for upset authors who were positive that we were holding out on them. Since I was also handling incoming orders from Amazon.com and brick and mortar bookstores I was well aware of what was actually going out the door at any given moment. It was never as much as they expected.
nightmareart
Oct. 8th, 2014 05:20 pm (UTC)
So people are likely to think we're selling more than we really are, and then lying about it? Hm. Wonder if there's any way to build in some accountability. I'll probably be coding the shop software myself, so I could make it give sales statistics to the artists when they log in or in a monthly email, but I'm not sure if that would actually help at all.

I'm really glad you told me this - I'd kinda half-thought of it myself and then stopped thinking about it because it was a hard problem I didn't know how to predict or handle. Is good to know going in that it's likely to be a real issue.
intj_reflection
Oct. 9th, 2014 03:01 pm (UTC)
People want to believe that their product is more desirable than it sometimes is. Independently published authors/short run published authors/vanity published authors in particular are the sort of people who just want to believe that as long as they get their work out there people will buy it.

It didn't help that my company had problems with online bookstores data-mining Amazon, the company we got our ISBNs assigned through and our primary distributor for information on our books and then using that information to bulk up their own offerings. Authors were calling because dozens of online bookstores were "selling" their book, when they had never even placed an order for stock.
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