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heres an example of how licensing and royalties work using a hammer and getting into home depot and lowes as an analogy the hammer retails for twenty dollars a typical fifty percent profit margin for a big box retailer would have a wholesale cost of ten dollars this wholesale cost is the price the retailer pays to take inventory of the product and sell at their retail locations lets say the inventors licensing deal with the manufacturer earns a royalty of 10 percent based on the wholesale cost that means that the hammer inventor would earn a royalty of one dollar per hammer sold at wholesale this is because the inventor would earn 10 of the 10 wholesale cost of a 20 retail price hammer one dollar may not sound like much in this day and age but with home depot and lowes having 4 000 us locations just a 10 unit purchase order for each store would make 40 000 just on the first order alone this should only be used as an analogy and not as a predictor of success for any specific inven
