Fair Compensation: A business dilemma

Every few months, I get an e-mail from a laser cutting shop unhappy with the licensing system on WoodMarvels.com asking me why I can’t be like XYZ company. My answer is that I basically have no desire to be like XYZ company but I am always open to suggestions.

My view on commercial licensing

Although it has evolved several times since I started WoodMarvels.com, the thoughts behind receiving fair compensation for the work of designers on my site as well as myself are never too far from my mind. Many potential customers have a hard time understanding why I don’t just take a one time “elevated price” for a model an in return, grant them unlimited commercial production rights.

For instance, I have a Platform Crane B whose EPS/DXF file retails for 14.95$ PER CUT (I only grant commercial production on a case by case basis). Usually I’m told “why don’t you just charge 50$ and let me make as many as I want”. I guess if I was the potential customer, that would be a heck of a deal! I don’t have to do any design work and am given files which I can cut 100x for a model that can easily sell for north of a 100$ a unit.

Gross Profit: 100 units x 150$US = 15 000$US – material/machine costs = 10 000$US
Cost of design: 50$
Net Profit: 9 950$US

I always appreciate the fact that I’m approached with this common complaint but as you can see from the above, it’s completely unfair to the designer. What sounds better to me is this model.

Gross Profit: 100 units x 150$US = 15 000$US – material/machine costs = 10 000$US
Cost of design: 14.95$ x 100 = 1495$US
Net Profit: 8 505$US

As you can see, the designer made some decent money but the potential customer cutting the design also made a very decent profit, sure they are marketing costs but at least it’s more equitable. Considering the designer can resell the rights to more than one place, it becomes something he or she can live from to continue working on their craft.

Platform Crane B: 3D Assembly Animation (720HD)

Problem with short term money

I’d love to be making a few thousand dollars a week again off of my work, if I allowed everybody to commercially produce my work for resale, you can quickly see the problem. I go from “raining money” to drought… with the only motivation to make a living being the quick release of new models. If I don’t release anything new, I don’t get my 50$ compensation to buy a little more oatmeal. While, using the fairer model, I can concentrate on improving designs, relationships and on the craft itself knowing that I will be able to make a living as others do as well.

Design is more work than people think!

I have a friend who wrote a very interesting quote in his Skype which essentially says “everybody sees you as pregnant but nobody knows how may times you had to make love to achieve it”. Design is very similar, the files are “cheap” considering the amount of time, education and hardware/software is required to make and promote them! Sure, I could cut corners, not produce a 3D animation for each model, not bother offering assembly instructions, not answering customer inquiries and so on… I can just draw the designs on napkins and sell photocopies too but the results wouldn’t be nearly the same. I really want people to understand that designing is a passion and you either love doing it or you don’t. Straight profits, from both personal experiences and talking to other designers, doesn’t provide much fuel towards this pursuit.

I’m in competition with myself to make things better with each new release,using less parts, easier building methods, stronger designs and so on. I’m not looking to compete against sites selling trinket designs that fall apart and can’t be handled without white gloves.

I always saw WoodMarvels.com designs as the Rolex of woodcraft, hence the name which I try to live up to!

Real world examples

You have musicians who are multi-millionaires because, they get a royalty from each sale of their work. If they just took, let’s say 10 000$US a song, they would quickly need to find another job to make ends meet. Boeing Aircraft makes money off the construction and sale of each of it’s planes, it doesn’t tell other plane manufacturers “give me a million dollars and you can make as many 747s as you wish for resale”. Even James Cameron who makes billions of dollars from a lifetime of hyper-passion for film making uses the “royalty” system to generate hefty profits long after his movies have left movie theaters as does George Lucas with his incredibly popular Star Wars franchise brand.

I hope this helps clarify why I’m going the “royalty” route vs the “quick cash” route with WoodMarvels.com. I absolutely love designing and building relationships with manufacturers and designers alike… everybody benefits and can make a living pursuing their passion. I think paying essentially “royalty” to commercially produce models is a heck of a deal and of course, with volume comes further discounts but this is the path I see myself sticking to for the foreseeable future.

The business dilemma with WoodMarvels.com

So, here we are… I’m at a cross-roads. I have a growing company in every sense of the word and I want to be able to offer designs to cutting shops who value quality workmanship but at the same time, taking a shotgun approach to commercial licensing is a headache in the making. My preference is dealing with as few “resellers” as possible but finding people willing to seriously market a product isn’t a task for the faint of heart. I’d like to offer more but as I’ve explained, not at the cost of my future income potential. I have a few ideas regarding getting the best of both worlds, we’ll see what comes of them.

The Bottom Line

A clear vision is difficult to sway but must still be open to new sights.

UPDATE: April 26, 2012
If you want to read more about this, I encourage you to read the article Unlimited Commercial Production for 7.95$? also found on WoodMarvels.com