Another Royalty Lesson I Had To Learn The Hard Way

I posted an article a few weeks ago about the case against royalty deals. And today I have another lesson I learned (and mistake to avoid) when it comes to earning royalties.

I’m focused on the best practices for royalty deals right now. The reason is a project that pays me royalties launched last month, and it’s starting to gain traction with our initial affiliate partners. (We made more revenue in the first 10 days of September than in all of August combined.)

This is the first time I’ve had a royalty-paying project start to scale. And it’s giving me insights I’ve never had before. (Many of them are “mistakes” — or lessons-learned — that I will be looking to address in future deals.)

Today I want to talk about how I structured the up-front payment, and what I would do differently next time.

Payment Terms I’ve Come To Regret

See, I took my up-front payment as an advance against royalties for this project. That means I do not get any new money into my bank account right now.

I only start to generate new cash flow once the client sells enough product that my royalty on those sales equals the advance.

For example, let’s say my royalty was $1 per bottle, and the client paid me a $10,000 advance.

That means the client gets to sell 10,000 bottles using my copy without paying me a royalty — since they already paid me that amount as the advance. I only make new revenue starting with bottle 10,001.

Benefits & Drawbacks Of Getting Paid As An Advance

Now this arrangement has its benefits. The biggest one is that it lowers the client’s costs during their initial testing and roll out. Since they have 10,000 royalty-free bottles at their disposal before they have to start paying me.

That gives them a longer runway to find a winner, increasing everyone’s odds of success.

But there are also downsides to this arrangement. The biggest one for me is that I am putting in a decent amount of work now to help us continue to grow. However I am not getting any new money in the door. All of the royalties I’m technically earning right now are going to pay off the advance.

New Approach I’m Considering Instead

So for future royalty deals, I’m going to push for a flat fee up front instead of an advance. Because it seems like no matter what, I’m going to need to invest significant time after a new project goes live.

If the funnel starts to scale, I will be working to optimize and support its growth.

Or if the funnel struggles out of the gate, I will be working to adjust it so that it starts to pick up stream.

But either way, I’m going to be “on the clock” to help make it the biggest success it can be.

And if I’m going to be putting in that work, I want to make sure I’m getting additional cash flow to make it worth my time.

Now I also thought about charging a larger advance that would also cover this additional time. But it seems to defeat the purpose. Since it would just mean I would have to wait that much longer before I start to see additional royalty payments.

So that’s really not ideal.

The flat fee seems like the way to go. So that’s what I’m going to be advocating for in future deals.

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