Understanding Buyout vs. Royalty in Surface Design and Art Licensing
If you’re exploring surface design and art licensing, you’ve probably come across the terms "buyout" and "royalty." These are two common ways to get paid for your art, and knowing the difference can help you make the best decisions for your creative career. Let’s break it down in simple terms so you can feel confident navigating these options.
What Is a Buyout?
A buyout is when a client pays you once for your artwork and takes full ownership of it. After the buyout, they can do whatever they want with the design, and you won’t see any additional income from it.
Why Choose a Buyout?
Quick Cash: You get a lump sum upfront, which is great if you need immediate funds.
No Strings Attached: Once you hand over the design, your job is done. No tracking sales or ongoing involvement.
Simple Agreement: It’s a straightforward deal, with no long-term obligations.
Things to Watch Out For:
No Future Earnings: If your design becomes super popular, you won’t get a piece of the profits.
Saying Goodbye to Your Work: You won’t have the rights to use the design again, unless agreed otherwise.
Fair Payment: Make sure the payment reflects the potential value of your work. Generally a piece can range from $400-$1,000 depending on the complexity of the work and usage.
What Are Royalties?
Royalties are ongoing payments you earn based on how many products sell with your artwork on it. You keep ownership, but the client gets the right to use it for their products.
Why Choose Royalties?
Earning Over Time: If your design sells well, royalties can add up to more than a one-time buyout. Generally you can negotiate between 5%-10% in royalty for one piece of art.
Keep Your Rights: You still own the artwork, which means you can often license it to other product categories (depending on the agreement). For example, I've had a floral piece selected for a greeting card, trinket tray and notebook. Each product category was for a different company and earns royalties. Think of it as triple dipping.
Shared Success: Both you and the client benefit when the design does well. Plus other clients can reap the benefits of your art for different categories.
Things to Watch Out For:
Patience Required: Royalties take time to come in, and they’re not guaranteed to be big. It takes at least 1 year to start to see royalties come in, this is because from a product manufacturing stand point it takes at least 1 year from product conception and development to products dropping in store. To truly start reaping the benefits of royalties it would take a full 3 years (which in general is the standard licensing term length).
Complicated Terms: Royalty agreements can be tricky, so read the fine print. Sometimes you can negotiate an advance against royalty. Which will allow you some money up front while still collecting royalties. For instance, I could license a piece of artwork for 3 years, nationwide with a category exclusive to gift bags with a $250 advance and 5% royalties. This means that my client would pay me $250 up front, then once the product royalties reach over $250 I will begin to receive additional 5% on every sale made.
Sales Dependent: Your income depends on how much effort the client puts into selling the product.
How Do You Choose?
Here are some things to think about when deciding between a buyout and royalties:
1. Your Money Needs:
Need cash now? A buyout might be your best bet. Want to build a long-term income stream? Go for royalties.
2. The Client’s Reach:
Is the client well-known with big distribution channels? If yes, royalties could be more profitable. If not, a buyout might make more sense.
3. Trust Factor:
Do you trust the client to be transparent about sales and pay royalties on time? Clients are required to track sales and royalties and provide you reports and quarterly payouts. If you’re unsure of a client’s reliability, a buyout is safer.
4. The Agreement Details:
For a buyout, clarify what the client can do with the design. For royalties, make sure the payment terms and timeline are clear.
Let’s Wrap It Up
Both buyouts and royalties have pros and cons, and the right choice depends on your goals and situation. The important thing is to understand what you’re agreeing to and feel good about the deal. Whether you’re aiming for quick cash or long-term earnings, there’s no wrong answer—just what works best for you.
Have you had experience with buyouts or royalties? I’d love to hear your story in the comments below!
Oh, and if you’re looking to dive deeper into how to make these decisions and negotiate confidently, we’ll be covering this topic in depth during the 8-week Moodboard to Market program. This program is all about helping you turn inspiration into a marketable collection while understanding how to get your art into the hands of paying clients.
