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Charging for formula development - Hourly fees VS Royalties
As a cosmetic chemist doing consulting work, what’s your take on charging per the hour and/or getting royalties for sales of the formula? Looks like $150 - 300 / hour is a normal range for formulas you give up ownership of.
Personally I’d be more inclined to charge a royalty rate in the case a product blows up, perhaps in combination with a lower hourly wage and an offer of continued formula support/iterations.What royalty rates are “industry standard”? And how do you ensure you get them? -
4 Replies
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I can see either strategy being effective. I think a reasonable royalty range is 1 - 2% but I don’t know for sure. It’s highly dependent on what you can negotiate.
With the probability of failure of any product line, I’d opt for the payment up front. Plus, you have to rely on the company actually paying you the royalties in the future. How would you keep track of their sales? It all seems pretty complicated. I’m sure it can work but I’d go for the hourly / project fees. -
Rather than a royalty, after a project is complete, I’d rather charge a “retainer” - a monthly or quarterly fee that insures my availability for consulting. Otherwise, Perry’s right - the accounting and trust issues get really complicated.
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Thanks guys,
Royalties could indeed get complicated, you’d have to be contractually clear about reporting requirements of gross sales and add provisions for wholesale/private labeling etc.Ideally I’d do a combination of a low hourly rate AND royalties, I think ~2% is common when dealing with large corporations, and that higher ~5% rates are reasonable with smaller outfits that won’t reach the same volume as quickly. Then you can add a clause stating that the percentage goes down after a certain threshold of gross quarterly sales to make the deal scale.@Bobzchemist What’s industry standard range for a retainer? -
If someone were to ask me to develop, say, a therapeutic cosmetic formula, I’d have to look at a lot of different issues.
1. There are bound to be a number of ingredients that the client finds desirable, that I don’t have and can’t obtain, so I would find it necessary to specify that the client would be responsible for making those available. For instance, it could be that I might use local ingredients not available to the client, which would be far worse.2. The price would depend on the probable development time. For instance, if someone were to ask me for a hair gel (fixative) with UV protection, I’d probably quote about 6 hours dev time. But if someone asked me to develop a psoriasis cream … well, that would be open ended (and to be frank, yes, I have been developing a psoriasis treatment. Without success.)
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