Royalty

Royalties allow owners to earn income from their assets without using them directly. The user pays the owner, usually as a percentage of the revenue generated or a fixed amount per unit sold.

Royalties are common in many industries. Authors and musicians receive royalties from book sales, streaming and broadcasts. Technology companies receive royalties for licensing their patents to manufacturers. Franchise owners receive royalties from franchisees. Landowners and governments receive royalties from companies extracting oil, gas or minerals from their land.

For example, a company that licenses a patented technology to a manufacturer in exchange for a royalty of 5% of sales would receive 100,000 if the manufacturer sells 2 million worth of products using that technology.

Royalty agreements typically set out the rate, how it is calculated, how often it is paid, the territory and duration of the licence and any minimum payments.

For owners, royalties can provide steady income with little ongoing cost. For users, they provide access to valuable assets without having to develop them. Some investors buy royalty streams as investments, since they can offer income linked to sales without owning the underlying business.