Terms Beginning With 'r'

Royalty

  • January 21, 2021
  • Team Kalkine

What do we mean by Royalty?

Royalty is a lawful restricted payment made to the owner in exchange for the right to use his/her intellectual property or asset. Royalties are paid by the party purchasing the property’s rights to the party that owns it. The party that owns the property is known as a “Licensor” (or the owner), and the party that purchases the rights is known as a "Licensee".

Understanding Royalty

Royalties are payments made by a party that gives it the right to utilize another party’s property. Royalties originate from licensing, which is the process of providing or taking authorization to produce, have, or use something that another party owns or has made it.

In other words, licencing is when someone who keeps the possession of a property gets royalties from somebody who uses that property.

Royalties can be seen across multiple sectors. However, they perform similar tasks everywhere. These royalties are bound by agreements, and they permit others to utilize the property, giving the proprietor the advantage of revenue. Besides, royalties shield the buyer from claims by the proprietor for inappropriate use.

Who can benefit from Royalties?

Royalty can be useful for both the parties, i.e., the proprietor, the owner, and the licensee, the buyer. Proprietors get benefit from royalty as royalty instalments can represent substantial revenue. On the other hand, licensees can profit by paying royalties to access someone’s assets, which they can use to promote, develop, or set up their business.

License Agreements:

A licensing arrangement is a legitimate bond between two parties - the licensor and the licensee. In a licensing agreement, the licensor awards the licensee the option to deliver and sell merchandise, apply a brand name, or utilize patent rights claimed by the licensor. In return, the licensee submits a list of conditions regarding the use of the licensor's property and consents to make instalments known as royalties.

What are the types of Royalties?

There are three types of royalties as covered below:

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  • Copyright: Copyright gives a legitimate right to the writer of a book, the picture taker who owns the pictures, or any such sort of scholarly works. Copyright royalty is payable by the publisher of a book to the writer of that book or the picture taker, in light of the publisher’s deal.
  • Mining Royalty:Licensee of a mine/quarry pays a royalty to the mine/quarry owner, generally based on the production basis.
  • Patent Royalty:The licensee pays patent royalty to the owner based on the production of respective goods.

Types of Royalty Charges

Several methods are used to structure the royalty payments, primarily dependent on the licensing agreement’s framework and conditions.

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  • Percentage: In most cases, the royalty payment is being collected on a percentage basis where the licensee agrees to pay a pre-agreed percentage of net gross revenue generated for the entire license agreement duration.
  • Fixed Price: Owner may decide a fixed sum to the licensee as a royalty for a fixed duration of time which can be collected regularly.
  • Variable Prices: This is mostly applicable for newly created properties and assets that hasn’t proved itself in the market yet. The licensee agrees to pay lower prices for the starting phase up to a point when a certain condition is achieved. The prices get revised after the certain state as per the agreement is met.
  • Minimum Royalty: Sometimes licensees agree to a minimum royalty payment regardless of the royalty percentage, or the revenue generated by the owner’s property or asset, the licensor or owner will receive a nominal amount of money.

What are GAFAM Stocks? GAFAM Stocks are perhaps the most famous and sought-after stocks of the last decade. The dominance of these companies during the 2010s in the stock market will be remembered in the books and adages.  It is the creation of market participants that develop acronyms like GAFAM, which include five large American companies having dominance across most jurisdictions. GAFAM stands for Google, Apple, Facebook, Amazon, and Microsoft.  Over time these companies have gained dominance in their primary business. In addition, GAFAM stocks have been aggressive in expansion and entering new verticals.  Although there have been considerable acquisitions along the way, the investments in research & development and innovation have been at the forefront of the capital expenditure plans.  Google Officially known as Alphabet Inc., ‘Google is not a conventional company’ is a statement made by its founders in their early letters. It has not been a conventional company, indeed. Google has developed significant networking within its products.  As a dominant search engine of the world, Alphabet reaps large revenue through advertisements through its flagship search engine and other products. Over the years, the company has been able to expand in other verticals such as mobile phone operating system – Android, web browser through Google Chrome.  Alphabet has two operating segments. Under Google, the company houses Search engine, YouTube, Search, Google Play, Google Maps, Android, Chrome, hardware, Google Cloud.  In other bets, the company includes businesses that are not material individually. These businesses include Calico, Verily, Waymo, CapitalG, GV, X and more. Almost all revenue of Alphabet is derived by Google segment.  In 2019, Alphabet recorded revenue of $162 billion, and around $161 billion was derived from Google segment. Operating income of the company was $34.2 billion, while net income of the company was $34.3 billion.  Read: Unboxing Revenue Growth Streak of Google and Microsoft Apple  Established in 1977, Apple Inc. is a consumer electronic company engaged in manufacturing of various consumer products. Apple mobile phones are renowned across the world, and it also makes personal computers, wearables, tablets, and accessories.  iPhone is the flagship mobile operates on an in-house developed iOS operating system. Mac is a brand for its personal computers that are also used extensively across the professional domain. iPad is a line of tablets, which run on iPadOS.  Apple also sells other wearables and accessories that include Apple Watch, Apple TV, Beats products, iPod Touch, Airpods. The core strength of the company has been its capability to innovate and launch products continuously.  iCloud is its cloud service, and data of its products can be stored in the cloud. As a consumer business, it markets are focused small individual customers that do not constitute a material portion of revenue individually.  In 2019, Apple recorded revenue of $260.2 billion. Its operating income for the period was $64 billion, while net income was $55.25 billion.  Facebook  Facebook Inc. was established as a social networking website and has grown tremendously due to its strong networking effects. It enables people to connect with each other or in groups. Facebook is used in mobile phones, personal computers, handsets etc. It has been a great place to share opinion, ideas, videos and photos. With its large user base, Facebook and its products are used for advertisements. The traditional modes of advertisements have lost significant market share to companies like Facebook.  Instagram is also a part of Facebook. It is used by people across the world to share photos and videos. It also offers a similar type of services like Facebook and has emerged as a networking platform for digital creators and influencers.  WhatsApp is a messaging mobile phone application. It allows people to connect privately and is extensively used by people. Messenger is another application by Facebook that enables people to connect with family, friends, groups and businesses.  Oculus is the hardware business of Facebook that helps to connect people through its virtual reality products. A major portion of revenue is generated by marketing and advertisement through its products that are used by large scale potential consumers.  Watch: Facebook launching 'Shops' on its social Media Platform | Market Update Amazon Amazon.com, Inc. was established as e-commerce in 1994. The company serves consumers, sellers, developers, enterprises, and content creators. Amazon also provides advertising services to publishers, sellers, vendors, publishers, and authors.  It serves consumers through its online and physical stores. Amazon offers a range of categories and is has a strong online retail presence. It has been engaged in manufacturing consumer electronics such as Kindle, Fire TV, Fire Echo, Alexa, Ring etc.  Amazon Prime is a membership of the company that provides shopping benefits, streaming of entertainment content, including movies, original content. It intends to provide customers with low prices and home delivery of goods.  It also enables sellers to access Amazon marketplace, which includes stores and online website. Amazon earns through a percentage of sales, fixed fee, combinations etc. Amazon Web Services offers cloud service to a range of public and private enterprises to store data.  Kindle allows content creators to publish and sell content/books on Kindle and earn a royalty on sales. In 2019, the company recorded net sales of $280.5 billion. Operating income for the year was $14.54 billion, and net income was $11.59 billion.  Microsoft  Microsoft Corporation is a technology company that develops software, services, devices and solutions. Its products are extensively used by businesses and individual customers to operate personal computers.  Microsoft’s platforms allow improving small-businesses productivity, educational outcomes, driving competitiveness of large businesses. As a platform and tools provider, the company empowers enterprise and organisations of all sizes.  Now it is emphasising on innovation for the next phase of computing stage. Other than its legacy operating system, Microsoft provides cloud-based solutions, services, software, platforms, content, server applications, desktop management tools, software development tools etc.  It also designs and manufactures and sell devices, including gaming consoles, PCs, tablets, entertainment consoles, and related accessories. In 2020, the company recorded revenue of $143 billion. Operating income for the year was $53 billion, and net income was $44.3 billion. 

What is Multi-Level Marketing?  Multi-Level Marketing (MLM) is a business model which consists of Network Marketing and Direct Sales. MLM is commonly known as ‘network marketing’ or ‘referral marketing’. The distribution-based marketing strategy consists of multiple layers/tiers of commission overriding. In MLM, the incentive or profit-sharing is organized at the multi-level of the sales force. Multi-level marketing is considered as one of the brand marketing strategies to strengthen brand image and boost product sales.  Sales personnel are expected to generate sales lead,  sell their products to end consumers based on word of mouth, network referrals and brand awareness, thereby boosting organic sales. They further onboard more people on commission basis to further expand the distribution and marketing chain. ALSO READ: Fundamentals of the Retail sector and the importance of marketing What is the Significance of Multi-Level Marketing? The purpose of Multi-Level Marketing strategy is to focus on distribution-based marketing which offers various kinds of commissions by distributing products to consumers. MLM companies recruit individuals who persuade others to join the sales force to sell their products. The more you recruit and sell, the higher you climb in the organization hierarachy, reaching the top of the pyramid. Each recruited person gets an opportunity to create its own team by recruiting more independent distributors.  Famous examples of companies making sales through MLM are Oriflame, Amway, Herbalife, Tupperware etc.  Suppose one salesperson appoints four more people and each one of them appoints two people each, the first salesperson will get paid for onboarding 12 new people. When one salesperson recruits more sales force, the person receives a percentage of their sales as well because you introduced them into the business. So, the idea is to keep onboarding more people in the distribution chain and climb up towards the pyramid top. MLM companies have different structures and strategies. Binary, Matrix, X-UP, Pyramid business plans.  MLM business is one of the profitable business plans in this world, and it's booming worldwide, but many of them are not trustworthy, and innocent people can get stuck up in fraud.  What is Network Marketing? In Network Marketing, consumers can participate as marketing representatives and salespeople. Individuals can promote and sell the products as per the company's instructions. In the Network Marketing, company or the manufacturer markets and sells its products to the consumers through a network of consumers. The sales team is not the employees of the company but the consumers who buy the products, participate and act as sales representatives. They are also called:   Direct Sales Agents  Distributors Independent Sales Professional independent sales Representative Business Associates In this type of sales strategy, the incentive is shared with the sales force, and a relationship is managed between the Marketing company or the Manufacturer and sales force via commissions. Each salesperson is motivated to sell more products and with the referral, convert more customers into sales representatives. Depending on the sales they do and people they recruit, they receive incentives apart from the financial benefits such as Bonus, Car fund, House fund, Travel fund and Royalty. ALSO READ: Marketing Tech Company engage:BDR Records Strongest February Since Listing What is Direct Selling? In Direct Selling, salesforce, which is employed to sell products, markets and sells the products to the consumers. Traditional business or a marketing company may hire a sales force to sell the products by giving daily based incentives with or without the sales. Door to door selling or selling on television or online sale are a few examples of this marketing strategy. The salesforce is employed at the marketing company or the manufacturer. Why is Multi-Level Marketing so Lucrative?  MLM (Multi-Level Marketing) is a type of marketing where someone manufactures a product and appoints a pool of people to sell and distribute it. With a pyramid structure, the maker of the product sits at the top of the pyramid and assigns salespeople to sell it for a commission. When a new person joins the sales either by them or by the people appointed by them, they will get an incentive amount and discounts on the products. Each salesperson has a "downline" or people set by that salesperson.  When a downline member executes a sale, a commission process begins. Further, these people expand marketing and distribution by adding more people in the chain. MLM has been gaining acceptance by business seekers as a lucrative job option in terms of flexi job hours, less initial investment, lower risk and ease of doing business. Many retirees have been hopping on to job opportunities in MLM based on flexible and convenient work commitment. INTERESTING READ: Don’t Miss! 4 ASX Marketing & Communication Stocks Amid COVID-19 What are the Risks Associated with Multi-Level Marketing?  The idea of Multi-Level Marketing has been criticized many times in the world. People have sued the companies for fraud. Some have also gone to jail for duping other people. In general, this strategy is considered as a bad idea by a lot of lawyers, economists, etc. Because there is no such legal contact made between the sales force and the manufacturer, and this can get risky. It mostly depends on which company you get associated with, their business risk and the worthiness of the person you are dealing with.  MLM is also banned in some countries, while it operates in all 50 US states. The business plan is referred to as ’affiliate marketing’. The marketing strategy is not illegal per say but it's also been criticised in the US court of law. Some countries like Saudi Arabia and Bangladesh also prohibit MLM on religious grounds. MLM is illegal in China and strictly regulated in a few other countries. Besides, people seeking employment in businesses based on MLM strategy are often burdened with the requirement of buying and managing inventories. A lot of initial efforts, sales campaign and persuasive selling is needed to get the sales process and business flow running smooth. Moreover, the earnings are based on sales commission and adding more tiers of the sales force in the sales and marketing chain. Lack of optimal compensation plan and risk of earnings threat often discourage people in associating with MLM based business model. What Strategies Can be Adopted to Sail Through MLM Risks? Businesses engaged in the MLM model should have customer satisfaction as the first goal in the Business Ethics charter. Informing customers of the benefits, risks and hidden charges in procuring and using the product need to be dealt with caution. Besides, security is another important area that need not be overlooked. MLM based businesses should be well-positioned at all levels of sales representatives to offer payment security to the consumers. Quality standards need to be maintained as per the commitments made. All the product features and specifications should be shared with the consumers in the most transparent fashion, amidst aggressive marketing and sales approach adopted by sales executives in meeting their sales targets and earnings hunger. After sales customer service and grievance addressal also play an important role in long-term sustenance of the MLM business model. While it is the most upcoming business opportunity, it should not be considered as ‘Get Rich Quick’ scheme. Dedicated efforts, smartness in tapping consumer interests of varied demographics, intelligent marketing skills are needed to enjoy stable earnings.

What is a business? Business is derived from the word busyness, which literally means to be occupied. When ‘ness’ is added to some adjectives, the word becomes a noun like sadness, happiness etc. In mainstream culture, business refers to the activity of producing, buying and selling of goods and service for the motive of profit.  Business can include commercial activity, professional services, or industrial activity. Historically, the primary motive of the firms is to earn profits by undertaking any business activity, but scope had increasingly widened to also address social, economic and environmental issues. It is a collective word and includes a broad range of entities like from a street vendor to Apple Inc. Businesses can be for-profit as well as not-for-profit motives, which mostly includes entities like charitable funds, endowments, government entities etc.  What are the various forms of businesses? Forms of businesses may differ across jurisdictions and their laws.  Sole Proprietorship  A sole proprietorship has a single owner, who is perhaps the chief decision-maker of the business. A sole proprietor can employ other people to assist for business activities and has unlimited liability for the obligations of the firm.  The person is also the decision-maker in the sole proprietorships and is responsible for overall management activities like capital allocation, budgeting. All assets of the sole proprietorships are owned by the sole proprietor, including machinery, building, equipment etc.  Partnership A partnership is a business owned by two or more people, and the profits and losses are shared among partners as per the partnership deed between partners. Each partner in the firm contributes to capital and resource to the business.  Further, there are usually three kinds of partnerships, which include Limited Liability Partnerships (LLPs), General Partnerships (GPs), and Limited Partnerships (LPs). This structure of the business is usually adopted by professional services businesses such as lawyers, boutique investment banks, accounting and audit, consultancy etc.  Company or Corporation  A company is a separate legal entity distinct from the owners or shareholders of the business. The owners of the company only have limited liability, but the corporate veil could be lifted, and owners could be held responsible for the acts of the company. Owners/shareholders of the company form a Board of Directors, which can constitute some member of the shareholder groups, independent persons. The Board of the company is the governing body of the company and is responsible for setting up a management team.  The management team of a company can also include some shareholders like majority owner and is headed by Chief Executive Officer (CEO), who is also a member of the Board of the company. CEO is responsible for operating the business, and the Board supervises the activities of the company.  A company and its shares could be publicly available for trading between parties such companies are known as public companies, whose shares are traded in a stock exchange, such as Nasdaq. Likewise, the companies that do not have their shares listed are called private companies.  Franchises Franchising is a system of business operations in which small entrepreneurs execute agreements with large companies. Under the agreement, the large company allows the small firm to use its brand, techniques, products, services in return of royalty on revenues.  Franchises are spread across the world and are an important type of business type used to scale up operations of a well-known brand, product or service across jurisdictions. A franchisor is a company that grants a license to uses its products or services, and the other party in the agreement is called Franchisee.  What are the main business activities? Finance  Finance function in businesses manages overall accounting and finance. It includes maintaining books of accounts, recording accounting transactions, and preparing monthly, quarterly, semi-annual, and annual financial statements.  In large enterprises, the function is headed by a Chief Financial Officer and also includes overall financial management, including investment decisions, performance evaluation, cost-optimisation etc.  Production or manufacturing  It is the most crucial function of any business that derives the ultimate source of revenue of the business being product or service. Production largely requires labour, capital, equipment and techniques to produce the desired output.  Under the production function, the business focuses on maximising its position based on the cost of product or service. It also becomes imperative for a business to produce high-quality goods or services for better customer satisfaction and brand development.  Sales & marketing  Sales and marketing function in the business ensure that products and services are reached to the maximum addressable market. The employees working in this function help the business to fulfil revenue targets.  They are also responsible for taking the brand of the business to new markets and establish a relationship with existing and potential customers. Business development is the primary role of sales and marketing function, along with brand management and development.  Research & development  Research & development is an important function of a business and is crucial for the future growth of the business. The new product development is initiated within the R&D function along with continues testing of ideas. The intellectual property of a business helps to achieve competitive advantages. R&D function is largely involved in intellectual property development for the business. In addition, the function may also undertake initiatives to improve operational practices of business through the development of new technologies and practices. 

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