Question:
I wanted to ask about the sale of a recipe in addition to the time put in to make a recipe. My client has hired me to produce a cookie recipe, which has taken a day and a half at an hourly rate of $50. How do I go about getting compensation for the recipe in addition to my hourly rate?
– Chef; Oakland, Calif.
Answer:
Many chefs are skilled at valuing their time when negotiating a salary to run a restaurant or foodservice operation. When consulting on new food products or recipe development for another restaurant or packaged food company, however, things are not so clear.
A framing that might be helpful is the distinction between transactional and transformational interaction. For example, a production chef responsible for baking 500 cookies per day for sale at $2 each is generating $1,000 of revenue. That is a transactional scenario. The chef’s time, together with the food cost, hourly labor, rent, utilities, equipment and so on can be easily calculated to determine the value of the transaction: expense in relationship to the revenue.
The scenario is much murkier when the cookie is a novel recipe developed by a consulting chef with a goal of transformational impact. Will your cookie recipe help your client reach thousands of dollars in annual sales? Millions? Will it be packaged and on store shelves nationally? While $50 may be a comfortable hourly rate for a transactional interaction, it may not feel as good for a transformational one, if your $600 fee turns into $6 million—or even $60 million—in sales for your client.
In general, there are three scenarios I’ve used for pricing product development services as a consultant:
- Work for Hire. This is the hourly rate model and is by far the most common. You do the work, they get the recipe. The advantage is you know what you’re getting from the outset; the disadvantage is you have a cap on your maximum earnings.
- Royalty or Equity Model. You may want to forgo some of your hourly rate in exchange for a small percentage of sales or equity. That way, if your cookie recipe is truly transformative, resulting in huge sales or an acquisition, you are along for the ride.
- Licensing. In this scenario, you own the recipe but allow your client exclusive or nonexclusive rights to use it for a fee. This scenario requires the most trust.
My advice is to have a frank conversation upfront about the business goals of the project and how your intellectual property factors into its success. You should have a clear contract in place using any of these scenarios before you begin. Cookies are not rocket science and if your price is too steep, other chefs would be happy to do similar work. However, a good cookie can make a lot of people very happy. You should benefit from the expertise you bring to the project.
Finally, when doing recipe or product development as an employee, the scenario is very different. Typically, the employer owns all of the intellectual property you develop on the job while under their employ, unless you’ve negotiated otherwise. More on that scenario here.