We’re the first ones to admit our royalty structure (which is called Influence on quirky.com) isn’t a simple one. That’s because what we’re doing isn’t simple – it’s groundbreaking. From the technology that divides – in real time – millions of fractions of royalties, to the community control of those royalties, we’re not your typical licensing company.
In this blog post we’ll answer all of the basic questions around how inventors make money on Quirky and shed some light on the rationale and mechanics behind these economics.
How does Quirky make money?
As of 2016 Quirky operates under a licensing business model. We no longer manufacture, and thus we don’t sell products to wholesalers or retailers directly. Instead, our licensees or designated distribution partners are the ones manufacturing the products which come off our platform, and they sell those products utilizing our brand name to retailers. They pay Quirky a product royalty of 3% for the rights to manufacture the product for which Quirky owns the intellectual property. They also pay Quirky a brand royalty for usage of the Quirky brand name, which typically ranges from between 2-5%, depending on how the product is branded when it comes to market (fully branded vs. co-branded). These royalties are where Quirky derives its revenue.
How much of the royalty that Quirky makes gets shared with the Community?
When a product is sold direct to consumer from Quirky.com, Quirky gives the full 3% product royalty to the community. The 3% royalty is on gross net paid revenue of that product. Gross net paid revenue means the retail price of the product minus discounts, allowances and returns.
When a product is sold to a third party retailer who then sells it directly to a consumer, Quirky splits the product royalty 50:50 with the community. That means the inventor and those who collaborated on the invention are sharing a royalty of 1.5% of gross net paid revenue. Gross net paid revenue means the wholesale price of the product minus allowances, and returns.
How come Quirky gets to keep 98.5% of the wholesale price (when a product is sold via a third party retailer, e.g. not from Quirky.com)?
First point to address is that Quirky is not keeping 98.5% of the wholesale price. As stated above, Quirky licenses all products to be manufactured and sold via third parties. Quirky is paid a licensing fee of between 5-10% for all products, out of which we pay the community.
Let’s review an example of a product sale via a third party retail channel.
- A retailer buys an invention from a Quirky manufacturing partner for $20.00 (wholesale price)
- Quirky receives a royalty of 7% ($1.40)
- Quirky pays the community 1.5% ($0.30)
- The manufacturer receives the remaining 93% ($18.60)
Why does Quirky receive a higher percentage than inventors?
Quirky receives a higher royalty because of the financial commitment and risk we’re taking in bringing your ideas from concept to marketable product. We have overhead including technology and infrastructure, security, an intellectual property team, staff that builds and maintains our technology, staff that curates and pitches your invention ideas to partners, industrial designers, marketers, customer support, and so on. The exact royalty rate we receive varies based on the level of complexity of the product, product category, and investment required to develop and bring the product to market.
Why does the manufacturer get to keep so much?
The manufacturer has taken on the majority of the risk and required investment to bring the invention to market, including mechanical engineering, tooling, factory management, production, quality assurance, legal/insurance liabilities, packaging, inventory, supply chain & logistics, training a sales force to sell the product into retailers…and the list goes on. Of the total ninety plus percent of the wholesale price they’re keeping only a fraction of that is actually profit.
What if I have already secured a patent and invested in building a prototype? Can I have a higher royalty?
Our answer on this one is maybe. On a case-by-case basis Quirky will evaluate invention submissions where an investment in procuring a patent and developing a prototype has been made to determine if an adjusted royalty structure is warranted.
Why is 20% of the Influence carved out already?
When allocating your influence during the submission process you’ll see that 20% of your influence is carved out already and locked. 5% of that is for Market Research, and 15% is for Quirky Projects.
Market Research is for any community member to take a market research survey. These surveys are tremendously valuable to our manufacturing partners and do play a role in influencing the selection of an invention for production.
Quirky Projects is the name we’ve given for a portion of the influence set aside for development support once an invention has moved into the Development phase. We know the Quirky community is full of very talented engineers, industrial designers and prototype makers. We reserve the right to offer influence to some of these community members for helping your product get to a point of viability by offering their more advanced product development skills. If we don’t allocate this influence it is given back to the inventor. It is never left in reserve.