Every design cost should include the cost of the rights of use

Letter of agreement (offer, contract, invoice) in design business should always be separated in two parts.

When in design business you should divide your contract into two parts. The first part should be the cost of your workload or the cost of layout/design development. The second part should be the costs of the rights of use.

Divide your offer into two parts

First part of the offer (or other document arranging the design procedure) should be the cost of layout/design development of the agreed solution. That could be, for instance: packaging for the new product line of the middle sized company. The cost of the layout could be determined either in fixed amounts either in design hours. If the design company expects 12 hours to develop the packaging and charges 76,00 €/hour that means 912,00 €.

The second part of the offer are the costs of the rights of use. We differentiate these rights twofold:

  • simple or exclusive rights, and
  • coverage of the rights: spatial, time of use, content limitation.

Exclusivity of rights

In the case of the packaging layout for simple local use that could mean factor 0,5 of the development costs. That means 456,00 €. Altogether that is 1.368,00 €.

Here two questions arise.

  • What if the client is not happy with the layout of the packaging?
  • And what are the factors for the calculation of the cost for rights of use for other situations?

In the case the client is not happy with the layout and is not going to use it, he is still obliged to pay for the costs of layout development. But the client is not obliged to pay the costs of the rights of use. This is the main argument why design procedure should be divided in two parts. The costs of layout/design development and the costs for rights. In such a case you will avoid any misunderstandings.

Coverage of the rights

And what could be the factors for other situation that may occur in charging the rights of use? You may adjust the proposed factors, I have tested them in real business situations.

Simple rights= 0.2 Exclusive rights= 0.5

Coverage of the rights
Years, from 1 till 5 per year= 0.06
Years, from 6 till 10 per year= 0,05

Local rights= 0.1 National= 0.4
Multinational, for every country abroad, from 2 to 5 countries per country= 0.06
Multinational, for every country abroad, from 6 to 10 countries per country= 0.05
EU (whole Europe) = 1,2
Global= 2,5

Content limitations
Single application= no factor
2 to 3 applications= 0,2
3 to 6 applications= 0,4
7 to 10 applications= 0,6
more than 10 applications= 0,7

I guess this proposition could actually work. Hopefully we are going to try it.

Source:
Hackenberg, Haide: Was kostet design? in Design management. Teil 1: Design Management im Fokus.
Marco W. Linke: Design kalkulieren – Stundensatz berechnen. Kosten kalkulieren. Nutzung vereinbaren. Verträge verhandeln. 2010.

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Marko Savić
I’m raising awareness on design thinking and business model innovation. Meet me in person at my next workshop. Don’t forget to follow this blog RSS feed or interact with me on Twitter.

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