Can you name the metrics that every royalty manager should know?
- Royalties payable in total and by period
- Royalties advance payments owed
- Unearned royalties
- Reserve for returns
- Royalty expense in dollars and as a percentage of sales
- Number of royalty contracts, authors and products
- Number of active royalty products with no contract entered in the system
A royalty manager is expected to know these numbers and to be able to summarize them during management meetings. A typical summary might be;
“Our royalties payable totals $800,000 of which $350,000 is due and payable by August 31st and $450,00 is payable by March 30th of next year. We have no past due royalties. Our unpaid royalty advances total $50,000, of which we expect to pay $30,000 out in the next three months. Royalty expense for the year to date is 11% of sales, this is an increase over the 10% rate we paid during the same period last year. We are managing 400 royalty contracts signed with 300 authors for 1,200 active products. A royalty contract has been entered for every active product in our system.”
This summary tells management; and the CFO, how much cash is needed to pay contractual obligations. It also tells them when these funds are needed for royalties payable and contracted royalty advances.
The last sentence; “A royalty contract has been entered for every active product in our system”, confirms that the royalty expense is not understated because a royalty contract for a new product had not been created.