How much % is fair to pay to reseller companies?

peggo (Pedro González)
peggo (Pedro González) Posts: 60
edited May 2017 in Type Business
Dear TypeDrawers friends and mates,

Since many years that I'm on this business, I never see this topic discussed in anywhere, considering that this times are each time more connected, sometimes I try to imagine how much the big companies cooking in earnings from type designers products reselling, and I have no clue to imagine how that huge monthly, weekly or daily balance could be, I just know about my personal part on this that it's look not much.

In a comparative* way (company vs designer earnings):
  • Monotype 50% + 30% in taxes (since 2016) over "Designer earnings" / Designer 35%
  • MyFonts 50% / Designer 50%
  • FontShop 50% ? / Designer 50%? (I don't know, may be less to designer)
  • Fontspring 30% / Designer 70% (not sure about taxes)
  • CreativeMarket 30% + 30% in taxes (since 2016) over the "Retail Price" / Designer 40%
(*) Not official information

The main question here is how much is fair to pay to companies in a global connected world and how to do this kind of business better for every participant?

Comments

  • Dave Crossland
    Dave Crossland Posts: 1,430
    I'm curious, what do you mean by taxes? Is this because the distributors are US companies and make a IRS withholding tax? 
  • Cesar Gulmatico
    Cesar Gulmatico Posts: 3
    That is withholding taxes on sales to a US resident/company by a non-US resident designer/foundry. You are assessed a 30% withholding tax but it can be lower (or none at all) if your country has a tax treaty with the US. The US font vendor has to do this or they will be in trouble with the IRS.

    According to your data, there is no a standard as to how the taxes are computed.  It seems to depend on the interpretation of the font vendor. Monotype's computation of taxes is based on designer share and it is fair to the designer. In the case of Creative Market, it is based on the retail price and it appears that the designer/foundry is subsidizing the withholding tax of the font vendor.

  • peggo (Pedro González)
    peggo (Pedro González) Posts: 60
    edited May 2017
    Dave Crossland said:
    I'm curious, what do you mean by taxes? Is this because the distributors are US companies and make a IRS withholding tax? 
    In simple words, Company earning is 50%, the amount in taxes 30% is discounted from of the 50% earning of "non-US resident designers" (like me and many other ones). So, the final earning for designers are just 35%, this percentage is the amount remains after all discounts that some companies do since 2016.
  • peggo (Pedro González)
    peggo (Pedro González) Posts: 60
    edited May 2017
    Cesar Gulmatico said:
    That is withholding taxes on sales to a US resident/company by a non-US resident designer/foundry. You are assessed a 30% withholding tax but it can be lower (or none at all) if your country has a tax treaty with the US. The US font vendor has to do this or they will be in trouble with the IRS.

    According to your data, there is no a standard as to how the taxes are computed.  It seems to depend on the interpretation of the font vendor. Monotype's computation of taxes is based on designer share and it is fair to the designer. In the case of Creative Market, it is based on the retail price and it appears that the designer/foundry is subsidizing the withholding tax of the font vendor.

    I'm not US resident and my country hasn't any agreement or treaty with USA to make that Taxes lower, so for each $1000 USD that my product generate in sales I will only receipt $350 USD only, and that not sound too fair to me, in fact that was the specific reason that made me stop to sharing my products with that companies.

    I really don't understand why (in the case of Monotype) I'm the only one (as designer) that I must to pay that taxes and not both of us (like Creative Market), I understad that rules has changed, because the previous stage (before 2016) on Font commerce has not related with any taxes matter.
  • Cesar Gulmatico
    Cesar Gulmatico Posts: 3
    The commission of the font vendor from sales is known to you when you decided to sell your fonts through them. Yes, their commission is very high but they can always justify that. Even if it is too high, why do foundries/designers kept on selling their fonts through those vendors. They probably knew something that we do not know. Unless designers/foundries will stop to sell their fonts through vendors that charges high commissions, a change in favor of the designer is very unlikely. 

    As far as taxation is concerned, that is the law and there is nothing you can do about it other than follow it. Here's a summary of which countries get a lower withholding tax rate http://taxsummaries.pwc.com/ID/United-States-Corporate-Withholding-taxes Font sales fall under royalties.

    I think you are mistaken on withholding tax. At Monotype, your 30% withholding tax is only applied to your 50% share of font sales. So if your font sales is $1,000, your withholding tax is applied to your $500 so that leaves you with a profit after tax of $350. This means that your withholding tax is actually only 15% since Monotype will pay the tax for its commission. In the case of Creative Market, you are paying the whole 30% since the tax is applied to the whole $1,000 instead of just your $700 share on sales. You are getting more from Creative Market because of its lower commission and not because it is sharing the burden of paying withholding taxes on your font sales. You are actually paying the taxes that Creative Market should be paying. This is all based on the data on your first message.
  • peggo (Pedro González)
    peggo (Pedro González) Posts: 60
    edited May 2017
    Cesar Gulmatico said:
    The commission of the font vendor from sales is known to you when you decided to sell your fonts through them. Yes, their commission is very high but they can always justify that. Even if it is too high, why do foundries/designers kept on selling their fonts through those vendors. They probably knew something that we do not know. Unless designers/foundries will stop to sell their fonts through vendors that charges high commissions, a change in favor of the designer is very unlikely. 

    As far as taxation is concerned, that is the law and there is nothing you can do about it other than follow it. Here's a summary of which countries get a lower withholding tax rate http://taxsummaries.pwc.com/ID/United-States-Corporate-Withholding-taxes Font sales fall under royalties.

    I think you are mistaken on withholding tax. At Monotype, your 30% withholding tax is only applied to your 50% share of font sales. So if your font sales is $1,000, your withholding tax is applied to your $500 so that leaves you with a profit after tax of $350. This means that your withholding tax is actually only 15% since Monotype will pay the tax for its commission. In the case of Creative Market, you are paying the whole 30% since the tax is applied to the whole $1,000 instead of just your $700 share on sales. You are getting more from Creative Market because of its lower commission and not because it is sharing the burden of paying withholding taxes on your font sales. You are actually paying the taxes that Creative Market should be paying. This is all based on the data on your first message.
    I decided to sell fonts with them, because the starting conditions was to be more favorable until that "taxes law" appear on 2016.

    I really feel that the amount that designers must to share to sell their fonts through that companies is too high, no matter what they know, no matter justifications, and no matter anything that I can reasonable understand, at the end, the example of each $1000 in sells and obtain only $350 from that starting $1000 is not look too fair to me.

    I understand the way how percentages are calculated on each case, my question here is not the formula applied on every calculation, but how much percentage from earnings is fair to share with each part? in the hypothetical scenario if we could choice to deal that amounts, how much do you feel fair? and have a better parameter to choose which company is better to work with and which not.
  • Cesar Gulmatico
    Cesar Gulmatico Posts: 3
    Mark Simonson said:
    <rant>
    Please, don't use the word "commission". Font distributors don't take commissions, they pay royalties on sales of licenses. Sales people working for font distributors might get a commission (meaning: a percent of the distributor's share of the sale price as an incentive to sell more licenses), but the distributor's net income after paying royalties is not a commission. It's just their net income. Calling it a commission is incorrect and confusing. 
    </rant>

    Sorry for going off-topic. This just really bugs me.

    My apologies for the wrong choice of words.
  • Beau Williamson
    Beau Williamson Posts: 80
    The question is what is the reseller doing for your sales that you wouldn't be able to do yourself. To paraphrase an adage from the book publishing world - making fonts is easy, selling fonts is hard. A 50/50 split is fair if the retailer is providing you a platform for higher sales. Not that I wouldn't want to be getting more :)
  • peggo (Pedro González)
    peggo (Pedro González) Posts: 60
    edited June 2017
    Beau Williamson said:
    [...]- making fonts is easy, selling fonts is hard.[...]
    No offense, but could you tell me which part of making font is easy?? sell fonts is just about sell fonts, and I know what reselling companies do for me, and that job is better than my personal job in terms of selling fonts, but nobody can deny that mass sales are way more huge compared to personal sales, anyway, after anything I know that nothing will change too much in all this situation, and all that left to us is take those alternatives that we feel better and leave the worst ones behind.
  • peggo (Pedro González)
    peggo (Pedro González) Posts: 60
    @JoyceKetterer
    Thank you for your answer, may be this was the best answer that I see at this topic.

    Since about a year I tried to run sales on my own website, but even the cost is a little high is not too much expensive as I suppose it will be, regarding the programming part of the job is a very time demanding (at the starting point), then more time is needed everytime when a new font need to be launched, I know, plus the cost on webhosting plan, etc, for a medium-small web font library, may be my opinion is based on my own experience and I'm not taking on mind the rest of the facts, but in a quick view if somebody tell me that I will earn just $35 from a gross sale about $100 probably I will reject that kind of business, no matter which kind of business be, is about how we feel with the earning distribution. I'm trying to see that percentage with better eyes, but is hard.

    I also know that resellers have more selling power than me, all this made me think precisely on volume sales and that is the exact point when I think about how hard is feel good with those respective percentages, and clearly I prefer those companies with better sales performance, maybe now I will rethink my maths.

    Thank you for give to this another point of view.

    Pedro
  • JoyceKetterer
    JoyceKetterer Posts: 813
    @peggo (Pedro González)  I'm glad I could help.  
  • Adam Twardoch
    Adam Twardoch Posts: 515
    Generally speaking, having a font distributor simplifies things greatly for a type designer. 

    The type designer starts a font project and then completes it. One the font family is ready to be distributed, the designer hands the files off to the distributor and, unless bugs are found, can move on to the next project, or perhaps even take a prolonged vacation if the font families sell well. Fonts rarely need to be upgraded when new operating systems are released. 

    The font distributor needs to keep operations 24/7. Selling globally, the e-commerce site, sales and tech support etc. need to operate continuously, quasi forever. That usually requires a larger staff.

    The font distributor needs to make sure that the site works with new browsers and operating systems, that the payment and customer information is secure, that the speed of the site is sufficient. So the distributor needs to constantly invest in and maintain infrastructure. 

    In short: a font distributor makes money for you while you work and while you sleep and while you're on vacation or out shopping or watching a movie. And this is why you share the revenue with the distributor. :) 
  • James Puckett
    James Puckett Posts: 1,995
    Resellers deserve a hefty cut if they offer a contract with good terms. But fifty percent is too much to give up of the contract is terribly one-sided in favor of the reseller.
  • John Hudson
    John Hudson Posts: 3,204
    edited June 2017
    Here's another idea:

    The operations that Adam describes involves both ongoing operating costs and regular investment in keeping them up-to-date, as well as periodic investment in significant improvement, overhaul, refreshment. But these costs and investments are all itemisable budget items, and they don't increase significantly relative to either the number of fonts on offer or the quantity of a given font that is sold.

    So why not link the percentage share of income from sales taken by the distributor to the quantity of those sales, on a sliding scale. So if a font doesn't sell very well, the percentage is higher, but if a font is a best seller, the percentage is considerably lower. This has the virtue of actually recognising the value that is generated by the individual products, rather than treating the whole distributor offering as a giant bag of undifferentiated commodities. The distributor would still be making more money from a bestseller than from less performing fonts, but would also be rewarding the font maker. This would also encourage font makers to do more to market their own fonts within the distribution market, without the sense that they're just doing the distributors' job for them, as often seems to be the case these days. As it is, distributors are encouraging font makers to compete against each other within the marketplace that the distributor controls, but for the same percentages.
  • KP Mawhood
    KP Mawhood Posts: 296
    @John Hudson
    Would the sales quantity be measured by number of sales or total sales revenue? E.g. the difference between a low-cost "best-seller" vs. high-cost luxury product.
  • Adam Twardoch
    Adam Twardoch Posts: 515
    I think a progressive model might be an interesting idea — similarly to taxation. The distributor takes a smaller share for less successful fonts, so people don't fall into the "tiny royalties" trap, while when some fonts become super-bestsellers, the distributor takes a larger share. This would eliminate the negative effect where some talented designers make 2-3 font families that sell immrnsely and then just "retire" on their monthly allowance, depriving the customers of their talent, plus would be more tolerable. 
  • Hrant Հրանդ Փափազեան Papazian
    Hrant Հրանդ Փափազեան Papazian Posts: 2,044
    FWIW http://www.letrs.io/ has launched and offers 70%. For now.

  • Jeff Levine Fonts
    Jeff Levine Fonts Posts: 13
    As a long time seller on both MyFonts and Fontspring, I personally believe that the 50/50 split is really "found money" for the  major type resellers.  Granted, they have certain fixed overhead and salaries [and corporate perks], but small, one-person operations such as myself who depend totally on font royalties to pay their bills [and their self-employment taxes] find it tough.  I've had to make incremental adjustments to my retail prices and always fear a drop-off  of sales when I do so.

    While the percentage for me has diminished the day-to-day costs incurred by rent, food, insurance, automotive repairs, etc. has only gone up over time.

    It's a Catch-22 to say the least... but considering that Monotype/MyFonts controls about 95% of the global font market we still need them to get our goods out there.  It's a reverse example of supply and demand.  If a designer doesn't accept the contractual terms of any distributor, then the global showcase of his or her product(s) is greatly diminished.

    A poor [but illustrative] example are the many items pitched on TV infomercials.  Good or bad, useful or not it is this small network of telemarketing experts that put these products in the TV viewer's line of vision and "creates" a market.

    Type design and sales, of course, is not telemarketing.  Creative people search for the 'perfect' type design that 'feels" like the message they want to project in their project.  There are thousands of choices.  If we didn't have the distributors with such a global reach, our sales might just be 10-30% of what they currently are.

    Sure, we feel the hours we slug away designing, assembling and kerning the fonts, writing the promotional text and creating the sales graphics are worth more than we receive on each sale... but it's a symbotic form of marriage.

    We need them, but we're not happy with them at times.

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