Example: Acquisition Contract with Transaction Tiering

You want to represent license acquisition contracts that contain a royalty rate based on the net product sales revenue with a quantity scale and the order of the product sales has to be considered during royalties calculation.

The example Transaction Tiering for One IP demonstrates the difference whether the order of the product sales transactions is considered or is not considered.

Representation in the License Acquisition Contract

You agree that an author is to receive 8% of all book net sales revenues for the first 1,000 copies sold and 10% of all book net sales revenues starting with the 1,001st copy sold.

You bill outgoing royalties once or twice per year, but for accounting or controlling purposes you calculate and post accruals on a monthly basis.

Maintain rights and variable royalties

Create an item with item category IEM4 (IPM acquisition rights and royalties item with cumulation per billing period) or a similar item category that you define (in SAP Customizing).

  • Restrict the content of the right within this item.

  • Define variable royalty rates (price agreements) within this item. In this case, enter 10% with price type 17TV (License Fee Net Value Transaction Tiering) or a similar condition type that you define (in SAP Customizing). Create a scale and add an additional entry with 8% for scale level 1,000.

Result

Assume that you initially sell 600 copies of the book for $20 each and then you sell 600 additional copies for $10, each within the same billing period.

During billing the system calculates the royalties as follows:

  • Condition basis (total sales) for the first 1,000 copies: [600 (units) x $20 (price)] + [400 (units) x $10 (price)] = $16,000

  • Condition basis (total sales) for the next 200 copies: 200 x $10 = $2,000

  • Royalty calculation: 8% of $16,000 + 10% of $2,000 = $1,480 (total royalties)