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It’s in your customers’ interest to pay royalty fees 22 December, 2010

Posted by varoom in Selling, Strategy.
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I spent quite a few years selling technology in my career both in products and as licensable technology. In the latter part I spent 6 years acquiring technology for a large semiconductor manufacturer.

This experience gave me a good perspective, from both sides, on the subject of paying royalty fees for licensed technology.

I remember once telling a senior executive of a large US company that it was “in his interest to pay my company royalty fees…” much to his surprise. He demanded that I convince him. This is the explanation I gave.

There are three reasons (the 3 R’s as I call them, Reward, Retention and Rejuvenation) that customers should pay royalty fees.

Firstly REWARD: Part of the royalty fee is a reward to the inventor/creator for the initial innovation and the effort required to turn it into a product that the licensee can use. This reward motivates the inventor/creator to do it again.

Secondly: RETENTION: Providing an ongoing revenue stream that keeps resources & skills inside the company attached to the technology and available for the Licensee if required. If these resources are moved off to other more lucrative projects when the revenue is gone this could be an issue for the Licensee.

Thirdly: REJUVENATION: To motivate the inventor/creator to continue developing enhancements/improvements in the technology that the Licensee can benefit from in the future.

The key factor here is ongoing revenue stream that the Licensor can attach to the resources. If the fee is all paid up front (in a Buyout license) then a couple of years down the road these valuable skills will be working on another project and will have lost some valuable know-how regarding the licensed technology.

The customer (Licensee) can be convinced that it’s really in their interest to pay royalty fees, try it; you may be surprised at their response!