Designer's cut...

Discussion in 'Boat Design' started by lewisboats, May 19, 2010.

  1. lewisboats
    Joined: Oct 2002
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    lewisboats Obsessed Member

    What would the typical Designer's cut be for a design that was licensed and went into commercial production? Just a small 1 big or 2 small person rowing skiff, ply build. Something in the 3-7% range I would imagine?
     
  2. marshmat
    Joined: Apr 2005
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    Location: Ontario

    marshmat Senior Member

    I can think of any number of ways such a deal might be set up.... a percentage cut as you describe would be one option (likely at the lower end of your range, for a series production boat). I've heard of builders buying the exclusive rights to the design outright, but I'm not sure if this is very common. My personal preference would be for the designer to be paid a flat fee for his design work, as with any other custom design, and then a small per-hull royalty for each boat produced. As a percentage of the value of one boat, I might guess that the design fee would often be in the range of 4 to 8 percent, and the per-hull royalty might be 1 to 4 percent? These are, of course, just very rough guesses....
     
  3. Eric Sponberg
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    Eric Sponberg Senior Member

    Terms vary all over the place. Some designers will quote a fee to be paid over the initial production run, or a fee based on the cost to build. The trouble with that method is that the designer does not get paid until the boat is built, and that may be for many months or years. And we designers have to eat and pay for a roof over our heads in the meantime. And, the boat being built may very likely NOT happen. So the designer ends up working for free. Where is the sense in that?

    In my case, I always quote a fee up front, to be paid by initial retainer and progress payments such that the final payment comes in when all the drawings are complete. The construction may have started before the design is totally finished, but at least I am paid for my work as I do it. For that, the builder gets to build his first boat. Design royalties kick in on the sale of the second boat, and typically, they are calculated at 1-2% of the cost of the boat. This is usually before dealers enter the picture and jack up the price for their sale and cut, if dealers are involved. I have never seen successful design royalties over 2%. If I have, the design usually does not succeed and/or the designer goes out of business.

    This system, clear as it is, rarely works. Builders are notorious for not paying royalties. They will nickel and dime the designer to death. And it is very rare that a design actually succeeds in getting built so that royalties even come into play. In these cases, I am at least paid for my work because I am paid up front.

    I always try to take the following tactic with my clients, and I admit that sometimes I slip, but here it is: I tell my client that it is not my job to fund your project. I am just the hired hand--I am the designer. I do not invest in your boatbuilding venture, I do not have a financial stake in it. You are paying me for the use of my brain--you have liked what I have done before, therefore you are paying me so that my ideas and work product come onto paper (or in computer files) for your benefit. That costs money. The fee is what it is. If you can't afford it, then please step aside and let the next customer come forward.

    Usually, I stipulate that the design product belongs to me, and that the builder's royalty to me gives him the rights to build and market the design and call it a Sponberg Yacht Design. Frequently, the builder will ask to own the design (the actual files) as well as the building and marketing rights. I don't have a problem with that. Usually there are clauses in the design contract that allow me to buy back the design if it ceases production, and/or to ensure that if the design gets sold to another company, then the royalties will continue under the new ownership. So there are various ways to handle that. It is easier to retain ownership of the design for a custom one-off than it is for a production boat where the company wants to own the design.

    That's the design business in a nutshell.

    Eric
     
  4. LostInBoston
    Joined: Aug 2006
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    LostInBoston Junior Member

    1-2% of what? the profit, cost, wholesale cost, dealer cost, retail cost. Fixed $ per hull built is the easiest plus any up front costs of the design, or 1 price and the builder can build as many as they want. There there are terms. Is this design exclusivly liscensed to that one builder and for how long, can the designer work with their competitors on similar boats?
     

  5. Eric Sponberg
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    Eric Sponberg Senior Member

    The royalty is usually 1-2% of the builder's cost to build the boat and have it out the door ready to ship. Admittedly, there are various things to include in that cost, and that is a matter for the builder and the designer to work out. It can include the builder's profit, or not, depending on what is negotiated. It will not necessarily be the retail cost, because that can vary, too, beyond the boat leaving the factory.

    What also has to be negotiated is when does the designer get paid? A check at every boat, a monthly payment, or a quarterly payment or annual payment??? Pick one. Negotiate something that is suitable to both parties.

    Licensing a design to a builder is usually for a term that goes on and on until the parties don't want to build and market the design any more--that is, until they decide to stop the agreement. Alternatively, a contract may be written for a certain term, say 5 years (pick a number) at which point the contract may be renewed by signing an addendum to the design aggreement to continue it. Yes, the license is exclusive. No one else may build that design except that builder. That's the point of an exclusive license. If the designer sells the design to the owner or builder, then the designer may not sell the design to anyone else, even for a do-it-yourself boat. I run into this fairly regularly, particularly with my houseboat designs. The construction method that I worked out with my client is exclusive to him. I may not divulge it to anyone else. But I get inquiries all the time for selling more houseboat designs. No, you cannot have that particular design in plywood, but you could buy one from my client. Or I can design a new one for you in fiberglass, aluminum, steel, whatever. Oh, how much does a new design cost? When I tell them, that usually ends the conversation and I don't hear from them ever again. (I want to build a houseboat but I don't have any money....) That is because people who want houseboats expect them to cost less than regular houses, but that's not necessarily the case. I could go on, but that's another story....

    May you work for other competitors building similar boats? Your first client may not like it, but like anything else, we operate in a world of supply and demand. If the demand is there, the designer may work for whomever he can get an agreement with. The designer has to be extremely careful to NOT divulge contract or construction details of one client to any other client, so the designs have to be as separate as is humanly possible. You obviously can't shut out your brain between clients, but you can protect one design against another--keep the projects in separate files, obviously.

    It can get sticky if one client takes great exception to you creating a competing design for another builder. So you have to pick and choose how you are going to behave. Do you want to piss off your clients--then take as many competing jobs as you can. Do you want to garner worthwhile working relationships--then pick and choose your projects so that you can maintain a certain level of exclusivity to your clients. Really, only the rock star designers--those that can command the highest and most lucrative fees around the world--have to worry about this. The vast majority of us would only be too grateful to have more than one client want exactly the same kind of boat.

    Eric
     
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