License fees vs. Royalties

Licensing and royalties are related but distinct concepts in creative and intellectual property revenue.

Licensing

Licensing is when you (the creator or rights holder) grant someone else permission to use your work (art, design, writing, photo, etc.) under specific terms and conditions.

You set the scope—what, where, how long, and for what purpose the work can be used. The licensee pays you for this right to use your work, intellectual property, or creative asset for a specific purpose, time, or territory.

• Payment: Can be a one-time fee, a fixed annual fee, a recurring fee, or based on usage.

• Examples:

  • An illustrator licenses a character design to a toy company for use on packaging for two years.

  • A magazine pays you £500 to use your illustration on their cover for one issue.

  • A company pays you a flat fee to use your photo in their ad campaign for one year.

Royalties

Royalties are ongoing payments made to the creator or rights holder, usually as a percentage of revenue or profit generated from the use of their work.

The licensee pays you a royalty each time the work is used, sold, or generates income.

• Payment: Typically calculated as a percentage of sales, revenue, or profit, and paid periodically (monthly, quarterly, annually).

• Examples:

  • A photographer receives a royalty every time their image is sold as a print or used in a publication.

  • You get 10% of every sale of a book that uses your cover design.

  • A stock photo site pays you a small amount every time someone downloads your image.

Licensing sets the terms; royalties are a common way to get paid under those terms.